Exclusive-HSBC explores private credit push, sources say

By Lawrence White, Sinead Cruise and Stefania Spezzati

LONDON (Reuters) - HSBC is preparing a foray into the white-hot market for private credit, five sources with knowledge of the plans said, the latest move by a global bank to get in on the booming sector.

HSBC's plan, reported here for the first time, shows how the bank is looking at ways to increase revenue after months of restructuring, job cuts and its biggest retrenchment from investment banking in decades. HSBC has held talks with private credit firms about a potential partnership, two of the sources said, without identifying them. The talks are at various stages and there can be no certainty that they will lead to a formal partnership, the sources said. The bank is likely to stop short of a full-blown push into private credit as some rivals have done, as senior executives, including CEO Georges Elhedery, are sceptical the revenue will outweigh the costs, one of the sources with knowledge of management's thinking said.

U.S. President Donald Trump's sweeping tariffs have alsoimpacted near-term demand for credit as corporate borrowers take stock of the turmoil, meaning HSBC will take a more cautious approach, a third source said. A spokesperson for HSBC declined to comment.

When banks team up with private credit firms, the latter typically provide the loan while banks earn fees for finding the customer and arranging the deal. The tie-ups enable banks to maintain customer relationships with limited or no risk to their capital.

Lightly regulated private credit providers - such as asset managers - are rapidly gaining market share from banks, which have pulled back from financing riskier clients because of capital and regulatory constraints. Banks can regain some of that business by via deals with private credit firms, as Citi did with Apollo last year. HSBC may not go as far as creating a separate unit or team to handle private credit, as other banks have done amid concerns about costs, two of the sources said. It could instead offer private lending via its existing asset management and life insurance businesses in Hong Kong, they said.

Jamie Markham, head of credit and capital management, who HSBC hired from JPMorgan in February 2023, is overseeing the planned push into private credit, one of the sources said.

Markham did not immediately respond to a request for comment via Linkedin. BANKS FIGHT BACK The share of private lending globally on bank balance sheets has slumped from 55% in the 1970s to 33% in 2023, data from the U.S. National Bureau of Economic Research showed, alongside huge growth in bond markets as a finance source, and, more recently private credit.

Credit rating agency Moody's estimates assets under management in private credit are expected to double to $3 trillion by 2028. Among other banks, JPMorgan said in February it had set aside $50 billion more for direct lending deals.

Goldman Sachs launched a new Capital Solutions Group in January to steer its private capital markets business, while Deutsche Bank last month agreed with its asset manager DWS to give it first preference on private credit deals it finds. Based on HSBC's most recent figures, it manages a $493 billion wholesale customer loan book, including hundreds of well-established mid-sized to large cap multinational companies thirsty for capital to fund cross-border expansion and trade. These borrowers are highly attractive to private credit investors because they borrow more regularly and offer better risk-adjusted returns.

(Reporting by Lawrence White, Sinead Cruise and Stefania Spezzati; additional reporting by Tommy Reggiori Wilkes in London, and Selena Li and Sumeet Chatterjee in Hong Kong; Editing by Elisa Martinuzzi and Jane Merriman)