Shareholders, Others, Poised to Sue Over Subprime Losses

When HSBC lost money due to HSBC Finance the bank worked very hard to turn a profit elsewhere. Developing nations held the wolves at bay as those opposed to HSBC’s Household International remain posed to file suit if the bank turned shareholder profits into a loss. Others may still file suit claiming $10.6 billion is a huge amount to swallow.

Relative to the current subprime crisis Fed chairman Ben Bernanke has suggested that investor losses could be between $50 billion and $100 billion. Given the ongoing rout in the credit markets, that could be a conservative estimate. With the subprime crisis fast approaching the proportions seen in the savings and loan industry collapse of the late 1980s, the lawyers are getting ready.

Securities fraud is more difficult to prove than, for instance, shareholder suits over subprime losses. Perhaps you should wait to see what Ohio’s Attorney General turns up in the discovery phase of his investigation. Marc Dann of Ohio is now focused on foreclosures, and claims seem sure to mount. In June, Mr. Dann filed 10 complaints against lenders and mortgage brokers operating in his state, blaming them for “driving Ohio’s shameful home foreclosure rate.” He’s also reportedly sniffing around credit raters Fitch, Moody’s and Standard & Poor’s, who put their approval on subprime securitizations and then belatedly downgraded them in recent months.

Back in 2002 Household – Watch, as we were called back then, predicted that many would hold their lawsuits until HSBC owned Household International. Some find HSBC subprime losses hard to take, while others think HSBC applied credit card payments late just to make an extra $39 from late fees. Some state attorneys general think lending practices were outside reasonable parameters. And last, but not least, some are questioning the validity of mortgages that were packaged and sold as bonds. In the same manner as a lender can tell which brokers are sending bad paper, bondholders can tell which lenders packed bad mortgages.