HSBC penalty cut by £56m

BY JOHN WILLCOCK

Financial Correspondent

The international bank HSBC Holdings yesterday won a £56m cut in a £176m damages judgment made against its Samuel Montagu merchant banking arm, following a seven-year legal action by the now-defunct British & Commonwealth financial services group.

HSBC put aside £125m against the claim in 1993. Samuel Montagu has itself already paid £176m into court. The bank's shares rose 4p yesterday to 730p.

The case centred on the planned acquisition by John Gunn's B&C group of parts of Mercantile House Holdings in August 1987. B&C only wanted the fund manager Oppenheimer subsidiary, and agreed to sell the moneybroking side to Quadrex, a financial services group run by Gary Klesch. Mr Kelsch now runs his own London distressed debt trading boutique, and has no further connection with Quadrex.

Quadrex failed to complete the 1987 deal, leading to a collapse in B&C's fortunes which culminated in administration. B&C started the claim against Quadrex and its advisers Samuel Montagu in March 1988 , and co-administrators Buchler Phillips continued it.

Quadrex subsequently disintegrated, leaving Samuel Montagu as the main target for the litigation. While Quadrex was still facing the claim, Samuel Montagu had to pick up its legal costs, and is now having to pay all the damages.

In May 1991 the court decided in favour of B&C, but how much damages should be paid had to be decided under another lengthy legal process. In April 1994 the court awarded damages of £188m, the vast bulk to be paid by Samuel Montagu. The bankappealed, and yesterday's ruling was the result.

Samuel Montagu may still appeal to the House of Lords, in which case it would have to lodge its papers within the month, legal sources said.

The creditors of B&C, owed a total approaching £1bn, will meet with their legal advisers and B&C's administrators after Easter.