HONG KONG/LONDON — HSBC reported an unexpected $400-million loss linked to a fraud case in Britain on Tuesday, raising further questions about lenders’ private credit exposure and sending the bank’s shares down 5 percent.
The loss shows why regulators worldwide have become more concerned about banks’ exposure to the $3.5-trillion private credit industry, highlighting the often indirect and opaque nature of the lending.
The British bank lent money to a private equity firm, which in turn financed a securitization — the form of lending made notorious during the 2008 financial crisis in which smaller loans such as mortgages are packaged together and sold to investors.
Chief Financial Officer Pam Kaur declined to identify the firm involved when questioned by reporters on Tuesday but confirmed the exposure was to “private credit-related loans.”
“We did a broad read at all our highest risk concentrations and exposures across the board, and we don’t see anything comparable there,” Kaur said, referring to the fraud-related charge.
HSBC shares, which have risen 52 percent in the last year, dropped 5 percent in London on Tuesday following the results announcement.
The emergence of wider signs of stress in private credit has driven regulators in the United States, Britain and elsewhere to probe lenders’ exposure, while officials such as US Federal Reserve Chairman Jerome Powell have also tried to calm market anxiety.
The US Treasury Department last month said it would meet international insurance regulators over distress concerns, while Canada’s banking regulator has also launched a review of lenders’ exposure.
HSBC rival Barclays reported a 228-million pounds ($308-million) impairment charge in the quarter related to exposure to collapsed bridging lender Market Financial Solutions which entered administration following fraud allegations.
Wall Street peers told investors last month they were stress-testing or monitoring private credit portfolios.
The six biggest US lenders disclosed about $108-billion financing exposure to private credit or related loans during their quarterly earnings.
HSBC last year began to expand its private credit lending, Reuters reported at the time, joining a raft of its global peers that had already begun partnering with specialist private credit firms as the industry ballooned.
The bank said it has $111 billion in private markets-related exposure, of which $22 billion is private credit-related.
The fraud-related loss alongside provisions taken against the impact of the US-Israel war with Iran drove HSBC’s expected credit loss for the first quarter a net $400 million to $1.3 billion, causing earnings to undershoot analysts’ expectations.
Europe’s largest bank posted pretax profit of $9.4 billion for January-March, versus $9.5 billion a year earlier and the $9.59 billion average of broker estimates compiled by HSBC.
HSBC revised its 2026 credit charge to 45 basis points of average gross loans, from 40 bps, citing “uncertainty in the outlook.”
HSBC underperforms European rivals
The results overall were “lackluster,” analyst Ed Firth at KBW said, especially given the performance of British rivals including Standard Chartered, which reported first-quarter earnings last week.
HSBC’s flat profit performance also compared unfavorably with European peers like Deutsche Bank, which reported record first-quarter profit last week, and UBS which beat forecasts, thanks to bumper trading.
At the same time, HSBC as well as Standard Chartered have bet on increased Middle East trade with Asia and beyond to fuel growth, making them two of the global banks most exposed to the US-Israel war with Iran, according to company data and sector analysts.
StanChart last week booked a $190-million credit charge due to cautious scenario planning stemming from the conflict, along with Lloyds Banking Group’s $204 million and Deutsche Bank’s $90-million provision in the same quarter.
