HSBC has experienced a $400 million (£295 million) charge linked to the collapse of a so-called “shadow bank” at the centre of alleged fraud, raising fresh concerns about exposure in the private credit sector, News.Az reports, citing the Telegraph.

Europe’s largest bank said the loss stems from a “fraud-related” exposure to an unnamed company.

According to the Financial Times, the firm is believed to be mortgage lender Market Financial Solutions (MFS).

MFS, based in Mayfair, entered administration in February amid what a judge described as “very serious” fraud allegations. The company has been accused of double-pledging assets used to secure loans, which allegedly created a multibillion-pound shortfall in its balance sheet.

HSBC stated that its exposure to MFS was “secondary” and routed through a financial sponsor, meaning the bank did not lend directly to MFS but instead through another intermediary that provided financing to it.

MFS specialised in short-term, property-backed lending to borrowers who may not have qualified for traditional bank loans. It operated in the fast-growing private credit sector, often referred to as “shadow banking,” where lending is conducted by non-bank financial institutions such as hedge funds and private financiers. This sector is generally less regulated and less transparent than traditional banking.

Alongside this, HSBC disclosed that it had set aside $1.3 billion in credit loss provisions in the first quarter of the year. This included $300 million earmarked for potential losses linked to an economic downturn associated with the Iran war.

The bank’s first-quarter profits fell by 1.1 percent to $9.4 billion.

Following the announcement, HSBC shares dropped by as much as 5.6 percent, making it the worst-performing stock on the FTSE 100 index.

The disclosure is likely to intensify concerns about global banks’ exposure to the private credit market. Earlier, Barclays also reported a £228 million impairment in its results, which was similarly linked to the MFS situation.

News.Az 

By Nijat Babayev