Judge Rules HSBC Must Face RMBS Suits From Investors

Judge Shira Sheindlin of the U.S. District Court for the Southern District of Manhattan ruled HSBC Holdings must face three lawsuits from investors that claim the bank tried to hide defects in residential mortgage-backed securities from them before the crisis, according to media reports.

Plaintiffs BlackRock Inc., Allianz SE's Pacific Investment Management Co., and TIAA-CREF, claim that HSBC breached its duties as the trustee in 283 trusts, causing more than $34 billion in losses when the financial crisis hit in 2008, according to a report from Reuters.

Scheindlin wrote in her decision that it was "plausible" to infer that HSBC knew about the breaches. According to court papers, the mortgage-backed securities in the lawsuit were issued during a four-year period from 2004 to 2008.

In late March, Scheindlin denied HSBC's motion to have the suits by the investors dismissed. HSBC was asking for the judge to dismiss the complaints based on lack of subject matter jurisdiction.

In addition to allowing the plaintiffs to pursue the breach of contract suits against HSBC, Scheindlin ruled that they could pursue a conflict of interest claim against the British-based bank, accusing it of refusing to expose loan servicers who engaged in misconduct, according to reports.

Some claims of negligence were dismissed, according to reports. The plaintiffs were allowed 30 days to amend the complaints. A follow-up conference has been scheduled for June 24.

A spokesperson for HSBC declined to comment on the judge's ruling when reached by email. An attorney for the plaintiffs did not immediately respond to a request for comment.

Plaintiffs BlackRock, Allianz, and TIAA-CREF were involved in a similar suit that was dismissed in May by U.S. District Judge Katherine Forrest in Manhattan. In that suit, the plaintiffs accused Bank of America and U.S. Bancorp of failing in their duties as trustees for 843 mortgage-backed securities totaling about $778 billion in collateral. Forrest ruled that the claims were not pleaded correctly on 33 of the trusts and that the remaining 810 trusts did not fall under her jurisdiction.