HSBC profit underwhelms on unexpected $400 million private credit loss
HSBC's First-Quarter Results and Private Credit Exposure
By Selena Li and Lawrence White
HONG KONG/LONDON, May 5 (Reuters) - HSBC reported an unexpected $400 million loss linked to a fraud case in Britain on Tuesday, causing it to slightly undershoot first-quarter profit estimates and raising questions about bank lending to the $3.5 trillion private credit industry.
First-Quarter Profit Performance
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.
The bank's Hong Kong-listed shares fell 4%, underperforming a 1.2% decline in the benchmark Hang Seng Index.
Credit Losses and Fraud Exposure
Expected credit loss surged by $400 million to $1.3 billion, due to the fraud exposure at its UK investment bank as well as the impact of the U.S.-Israel war with Iran and deteriorating economic outlook.
HSBC revised its 2026 credit charge to 45 basis points (bps) of average gross loans, from 40 bps, citing "ongoing uncertainty in the outlook".
Details of the Fraud Case
The bank described its loss in Britain as coming from "fraud related secondary securitisation exposure with a financial sponsor in the UK".
The lender did not identify the company involved. HSBC said it has a total of $3 billion in exposure to such securitisation financing, which it described as lending backed by portfolios of receivables such as mortgages, consumer loans and auto loans.
Industry-Wide Impact and Comparisons
Rival Barclays also reported a 228 million pounds ($308 million) impairment charge in the quarter related to exposure to collapsed UK bridging lender Market Financial Solutions (MFS), which entered administration following fraud allegations.
HSBC's flat profit performance compared unfavourably with big European rivals like Deutsche Bank, which reported record first-quarter profit last week, and UBS which beat forecasts thanks to bumper trading.
Private Credit Market Stress and Broader Exposure
The lender's hit is the latest sign of stress in the private credit market, which has grown rapidly in recent years as institutional and wealthy individual investors sought higher returns from less-liquid, harder-to-value lending.
HSBC said it has $111 billion in private markets-related exposure, of which $22 billion is private credit-related.
Geopolitical Risks and Credit Charges
At the same time, HSBC as well as Standard Chartered have bet on increasing Middle East trade with Asia and beyond to fuel growth, making them two of the global banks most exposed to the U.S.-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.
Currency and Reporting Notes
($1 = 0.7395 pounds)
(Reporting by Selena Li in Hong Kong and Lawrence White in London; Editing by Christopher Cushing)
