HSBC took a £500m hit as it counted the cost of a ‘fraud-related’ exposure to private credit as well as gathering gloom over the impact of war in the Middle East.
Shares in the banking giant fell 5pc in early trading as it reported a profit of £6.9bn for the first quarter, missing analyst forecasts.
HSBC took a £300m charge related to its lending to a private equity firm which had exposure to private credit related loans.
It comes after rival Barclays took a £228m hit related to collapsed UK bridging lender Market Financial Solutions (MFS), which entered administration amid fraud allegations.
HSBC’s hit was also related to MFS, the Financial Times reported.
Finance chief Pam Kaur did not name the company involved but implied it was a one-off, describing the episode as ‘idiosyncratic’ and said the bank had ‘not identified any comparable fraud concerns’.
HSBC reported profits of £6.9bn for the first quarter
The bank disclosed that it has £82bn in private markets-related exposure, of which £16bn is private credit-related.
Meanwhile, it took a £220m charge to account for ‘heightened uncertainty and a deterioration in the forward economic outlook’ caused by the Iran war.
And it said it had modelled a range of scenarios on the impact of the war ‘which include higher oil prices, rising inflation, a material slowdown in GDP, rising unemployment and market disruption’.
These could result in a ‘mid-to-high single digit percentage adverse impact on profit before tax’, the bank said.
It assigns a one in 20 chance to a worst-case scenario which sees a ‘simultaneous crystallisation of a number of risks that leads to a deep global recession’.
However, Kaur said that so far its wealth management business had seen only ‘very minimal capital flows’ out of the Middle East since the war began.
She said the region was a ‘core part of our strategy’ and the ‘vast majority’ of customers, many in Asia, remained ‘very confident with cross-border business from the Middle East’.
Kaur said HSBC had ‘a couple of thousand colleagues’ in the region mainly in Dubai as well as others in Saudi Arabia and smaller presences elsewhere.
Some expat staff members had ‘wanted to leave the region and go back to their home country for short periods’.
But she added: ‘Now most people are back and we just hope that things stay stable over the next few weeks.’
HSBC’s UK business saw a 24pc increase in mortgage applications in the first quarter – in line with rivals, as borrowers try to get ahead of coming rate rises.
Kaur said the UK economy ‘remains resilient’.
She added: ‘We are not seeing any signs of consumer distress, we are seeing robust demand for credit in mortgages as well as in credit cards.’
And Kaur brushed off fear of political uncertainty ahead of this week’s local elections.
‘We’ll all wait for the election results. I too will make sure I go and vote on time,’ she added.
