LONDON/HONG KONG: HSBC reported an unexpected USD400 million loss linked to the collapse of British-based mortgage lender Market Financial Solutions on Tuesday, raising further questions about lenders’ private credit exposure and sending the bank’s shares down 6 percent.
The loss shows why regulators worldwide have become more concerned about banks’ exposure to the USD3.5 trillion private credit industry, highlighting the often indirect and opaque nature of the lending. The loss was linked to HSBC’s lending to Apollo-backed unit Atlas SP and its financing of Market Financial Solutions (MFS), two sources familiar with the matter told Reuters. Atlas SP disclosed in February it had a 400-million-pound exposure to MFS, after MFS entered administration following fraud allegations.
HSBC Chief Financial Officer Pam Kaur declined to identify the firms involved when questioned by reporters on Tuesday but confirmed the exposure was to “private credit-related loans”.A spokesperson for Atlas declined to comment.
Europe’s largest bank by market value and Apollo partnered in financing private credit opportunities, HSBC said on its website last November.
“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, were down 6.2% by 1327 GMT in London following the results announcement. Citi analysts said the shares were also weighed down by HSBC’s wealth revenue growth - an 18 percent increase in the quarter from a year ago - lagging behind that of rival Standard Chartered at 32 percent following its aggressive push to grow the number of relationship managers.
Regulators probe lenders’ exposure
The emergence of wider signs of stress in private credit has driven regulators in the US, Britain and elsewhere to probe lenders’ exposure, while officials such as US Federal Reserve Chair Jerome Powell have also tried to calm market anxiety.
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