HSBC has suspended high-risk private credit financing following major corporate insolvencies that exposed weak industry underwriting, the Financial Times reported citing sources.
The UK-headquartered banking giant recently informed clients it will not renew facilities for private credit funds that fail to deliver sufficient returns to justify the risk, shifting its focus to more stable funds, the news publication said citing sources.
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An insider said that HSBC’s interest in the sector remains strong but it is “adjusting its risk tolerance to the sector” by cutting back leverage – bank lending to private credit funds – for certain clients, while maintaining other services.
In a statement to Private Banker International, a HSBC spokesperson said: “We have built an offering that covers every stage of the private credit market, offering a seamless process with robust central oversight. We focus on supporting deals globally for our most important clients, in regions where we see the most potential for growth and aligned to our strategy.”
The pullback mirrors moves by other institutions like Barclays, whose chief executive, CS Venkatakrishnan, noted in April that the bank was “constraining lending to certain structured finance counterparties.”
These retreats are forcing private credit funds to find alternative financing to keep their loans profitable, as per the report.
Both British banks re-evaluated their positions after the £2bn ($2.6bn) collapse of bridging lender Market Financial Solutions (MFS) amid fraud allegations.
Barclays provisioned £228m for MFS-related losses, while HSBC took a $400m charge due to its exposure via Apollo’s Atlas SP unit, which had lent to MFS.
These issues followed previous US bankruptcies of car lender Tricolor and auto parts firm First Brands Group, which had already triggered portfolio reviews.
Regulators have increasingly warned about these financial linkages, with the European Central Bank noting that shocks could be “transmitted, amplified and redistributed” across the system.
Barclays refrained from commenting.
Conversely, US financial heavyweights continue to forge new paths in the sector, highlighted by a May private credit partnership between Citigroup and BlackRock’s HPS Investment Partners.
