HSBC Holdings PLC is reassessing its risk appetite and slowing down a previously announced $4 billion private credit expansion plan following a $400 million loss related to fraud. It is reported that Europe's largest bank has not yet materially deployed this capital into private credit funds within its asset management division.
The direct trigger for this slowdown in expansion is a loan loss connected to the Atlas SP Partners division of Apollo Global Management. Atlas had provided financing to UK mortgage lender Market Financial Solutions, which collapsed amid allegations of fraud. HSBC became indirectly involved by providing back-end leveraged financing to Atlas, leading to a provision of approximately $400 million in losses. Sources familiar with the matter revealed that within this special purpose vehicle, HSBC funded 80% of the loan value, exceeding the industry's typical 60-70% range, which left it with an insufficient buffer.
HSBC Chairman Brendan Nelson stated at the annual shareholder meeting that the bank has largely completed a review of its lending policies and is updating its risk appetite. Although a spokesperson reaffirmed HSBC's commitment to offering private credit funds, reports indicate that no capital has been deployed yet, and there are no immediate plans to proceed. When announcing the plan in June last year, the bank had aimed to compete with giants like Blackstone and Apollo in the $1.8 trillion private credit market.
Concurrently, market sentiment was already tense as global investors faced a surge in redemption requests for private credit, partly due to risks posed by artificial intelligence disruption in the software sector. This incident has also reignited regulatory concerns about banks indirectly bearing credit risk through complex chains.
Comments