HSBC Faces $34 Billion in Damages to Investors

HSBC was sued by Blackrock et al for breaches of duties as Trustee of RMBS Trusts. U.S. District Court Judge Shira Scheindlin has ruled that while the Plaintiff may amend, causes of action were sufficiently stated, leaving the Bank facing at least $34 Billion in damages relating to losses allocated to investors.

There are actually three complaints, but to sum it up in the Judges words,

“Each complaint details the ‘routine abandonment of their underwriting guidelines; the routine fabrication of borrower and loan information; massive breaches of their [representations and warranties]; and the engagement of predatory and abusive lending.”‘

and

“alleging … common sponsors’ pervasive disregard of prudent securitization standards.”

According to the investors, HSBS as Trustee should have “putback” the loans requiring the sellers to repurchase them or replace them with good loans. That of course they couldn’t do because by the time everyone realized what was happening there were no good loans or any loans at all that could replace the prior bad loans.

HSBC is a relatively small player. The figures for the likes of U.S. Bank and others are going to be staggering. And they should be.

Then underlying theme is that HSBC acted against the interests of the investors instead of for them. No Surprise. And it should come as no surprise that these lawsuits are being processed through the judicial system now leaving the mega banks with a hole in their balance sheets and income statements that just can’t be plugged up. They have faked the whole securitization scheme up until now, but now the auditors may feel they are required to force disclosure of risk of loss and worse yet, force disclosure that the assets and income reported are based upon fictitious or over stated transactions. Or is it time to throw the auditors under the bus again?

Elizabeth Warren may get her wish — the big banks that have controlled the country are about to be broken into little pieces.