LONDON, Aug 5 (Reuters) - HSBC Holdings Plc,Europe's biggest bank, said it could take a hit of up to $1.6billion in a settlement with a U.S. regulator over allegationsit mis-sold mortgage-backed bonds during the housing bubble.
The Federal Housing Finance Agency (FHFA), the conservatorof Fannie Mae and Freddie Mac, has alleged 18 banksmisrepresented the quality of the collateral backing securitiesbetween 2005 and 2008.
Swiss bank UBS paid $885 million in a settlementwith the FHFA last month and Citigroup and GeneralElectric have settled for undisclosed sums.
"Based upon the information currently available, it ispossible that these damages could be as high as $1.6 billion,"HSBC said in a filing alongside half-year results on Monday.
HSBC has previously said the financial effect of anylitigation "could be significant" but it has never estimatedwhat it could be.
HSBC said it had been named as a defendant in a number ofactions in connection with its residential mortgage-backedsecurities (RMBS) offerings, which generally allege thedocuments contained misstatements and omissions.
HSBC said discovery in the action against it "is proceedingapace" and the FHFA's lawsuit asserts claims for damages andrescission and alleges the banks caused hundreds of millions ofdollars in damages to Fannie Mae and Freddie Mac.
Rivals, including Credit Suisse and Deutsche Bank, have set aside money to cover the cost of any lossesarising from the dispute, but estimates on possible costs varywidely. Analysts at Credit Suisse had estimated HSBC could takeface a $900 million loss from the litigation. (Reporting by Steve Slater, editing by Louise Heavens)