HSBC reported an unexpected US$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 US$3.5 trillion private credit industry.

Europe's largest bank posted pretax profit of US$9.4 billion for January-March, versus US$9.5 billion a year earlier and the US$9.59 billion average of broker estimates compiled by HSBC.

The bank's Hong Kong-listed shares fell more than four percent at one stage to HK$136.40, underperforming a 1.2 percent decline in the benchmark Hang Seng Index.

Expected credit loss surged by US$400 million to US$1.3 billion, due to the fraud exposure at its UK investment bank as well as the impact of ⁠the US-Israel attacks on 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".

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 US$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.

Rival Barclays also reported a £⁠228 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.

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 US$111 billion ‌in private markets-related exposure, of which US$22 billion is private credit-related. 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 US-Israel war with Iran, according to company data and sector analysts.

StanChart last week booked a US$190 million credit charge due to cautious scenario planning stemming from the conflict, along with ⁠Lloyds Banking Group's US$204 million and Deutsche Bank's US$90 million provision in the same quarter. (Reuters)



Edited by Thomas McAlinden