HSBC reported first-quarter pre-tax profit of $9.37 billion on Tuesday, falling short of estimates after the bank booked a surprise charge tied to an alleged U.K. fraud and set aside additional funds to cover risks from the Middle East conflict.
The bank set aside $1.3 billion in credit losses, including $400 million tied to the collapse of U.K. mortgage lender Market Financial Solutions
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HSBC reported first-quarter pre-tax profit of $9.37 billion on Tuesday, falling short of estimates after the bank booked a surprise charge tied to an alleged U.K. fraud and set aside additional funds to cover risks from the Middle East conflict.
Analysts had expected pre-tax profit of $9.59 billion, according to CNBC. Net profit for the quarter was $6.94 billion, a 0.1% increase from a year earlier. Analysts had projected $7.02 billion, according to The Wall Street Journal.
Quarterly revenue of $18.62 billion topped the $18.49 billion analyst estimate, a 6% increase from the prior year period that HSBC attributed to gains in wealth fees and other income.
Credit losses for the quarter totaled $1.3 billion. HSBC attributed $400 million of that figure to what it called a "fraud-related, secondary, securitization exposure with a financial sponsor in the U.K.," while a separate $300 million was set aside against the economic fallout from fighting in the Middle East.
According to Bloomberg, the unexpected provision traces back to the implosion of Market Financial Solutions, a London-based firm that made short-term property loans. Atlas SP Partners, the structured-credit arm of Apollo Global Management, was identified as the financial sponsor. The Wall Street Journal reported that HSBC had lent directly to Atlas, which came to hold MFS assets after purchasing Credit Suisse's asset-backed lending unit, and that Atlas carried roughly £400 million in MFS-related exposure.
According to The Wall Street Journal, a recent update from MFS administrators disclosed two lines of inquiry: funds that appear to have been routed to incorrect accounts, and collateral that may have been pledged repeatedly to secure multiple loans. Barclays, Castlelake, Jefferies Financial, and Banco Santander also had exposure to MFS, The Journal said.
CFO Pam Kaur characterized the loss as a one-time event and said a portfolio-wide review had turned up no similar concerns. "We regard this charge as idiosyncratic," Kaur told The Wall Street Journal. "We have completed a review of the highest areas of risk in our portfolio and haven't identified any comparable fraud concerns." Kaur acknowledged that HSBC had depended on the private-equity firm's own due diligence processes and said the bank intends to tighten its oversight going forward. HSBC disclosed that private-credit exposure across its loan book amounts to $22 billion, or roughly 2%, of which approximately $3 billion sits within its securitization financing business.
For the full year, HSBC now projects credit loss charges of roughly 45 basis points relative to average gross loans, according to Bloomberg, revising upward from an earlier 40-basis-point forecast.
HSBC left its 17% return-on-tangible-equity target unchanged but cautioned that a full materialisation of Middle East risks — among them elevated oil prices, inflationary pressure, and a meaningful GDP contraction — could push full-year returns beneath that threshold. For the first quarter, the bank's annualised return on tangible equity, stripped of notable items, came in at 18.7%.
HSBC stock fell 5.5% in London. The board approved a first interim dividend for 2026 of 10 cents per share.
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