More headaches for UK banks as lawsuits linked to US housing collapse and Bernard Madoff could cost them billions

By ROB DAVIES

PUBLISHED: 22:27, 16 August 2012 | UPDATED: 22:27, 16 August 2012 

 British banks face multi-billion dollar bills from a host of lawsuits linked to the US housing market collapse and dealings with fraudster Bernard Madoff, adding to their money-laundering and Libor headaches.

The interim financial results season revealed a litany of potential costs facing lenders with divisions in the notoriously litigious US.

The lion’s share of the lawsuits involve the sale of mortgage-backed securities – financial products linked to the US housing market – blamed for a US property bubble which burst, sparking the global financial crisis.

Litigious: Lawsuits linked to the US housing collapse and Bernard Madoff could cost banks millions

Royal Bank of Scotland subsidiaries are named in more than 30 lawsuits involving the sale of more than £54billion of mortgage-back securities between 2005 and 2007.

And HSBC is also being sued over its issuance of mortgage-backed securities, while Barclays is fighting similar suits with the potential for millions of dollars of losses.

All three banks are accused of misleading customers who bought such products. Among the complainants are collapsed US mortgage lending giants Fannie Mae and Freddie Mac.

HSBC has also set aside £163million to settle claims that it made errors in repossessing houses as the US property market plunged. The bank has admitted it may have to set aside much more money to meet financial penalties and lawsuits.

A far larger risk for HSBC is the impact of a suit from those who bought shares in its US arm Household between July 1999 and October 2002, before HSBC owned the division. They allege they lost money as a result of the unit’s lending practices, which forced the bank to make a £307million settlement.

HSBC is arguing it should face no damages at all, but has warned it might have to shell out as much as £2.2billion.

Both HSBC and RBS are also battling claims from the trustee tasked with handing out compensation to victims of the massive fraud perpetrated by Bernard Madoff. The trustee is claiming £186million from RBS, saying the bank benefited from the fraud and ‘knew or should have known of Madoff’s fraud’.

HSBC is named in a £5.7billion suit ‘for allegedly aiding and  abetting’ the fraud, which it is contesting.