agree on Republic's potential liability for losses incurred from possible securities fraud by a Republic client, Princeton Economics International Inc., sources close to the two banks said Thursday.

Republic's headache has become HSBC's problem because the London banking company had agreed to buy Republic for $10.3 billion last May, before news of the scandal broke. The agreement has come under renewed scrutiny by HSBC as a result of the difficulty in determining Republic's actual liability. The alleged fraud cost Japanese investors as much as $1 billion.

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