HSBC has reported a 4% decline in profits for the first quarter of the year, as the bank grappled with a $400 million fraud-related charge and the economic fallout from the conflict in the Middle East.
Profit and Revenue Details
The London-headquartered lender saw its pre-tax profit fall by $100 million to $9.4 billion for the three months ending March 2025, compared with the same period last year. Revenue, however, increased by 6% to $18.6 billion.
Impact of Middle East Conflict
The profit decline was partly driven by a sharp rise in expected credit losses, which jumped to $1.3 billion. This included $300 million specifically linked to the impact of the US-Israel war on Iran, reflecting the bank's exposure to the region.
Fraud-Related Charge
HSBC also recorded a $400 million charge related to a suspected fraud in the private credit sector. The bank's chief financial officer, Pam Kaur, explained that this involved loans made to an unnamed private equity group, which were then exposed to private credit-linked loans. According to the Financial Times, the case is linked to Mortgage Financial Solutions (MFS), a home loan lender that collapsed in February amid fraud allegations. HSBC declined to confirm the firm's name.
The fraud charge highlights the risks high street banks face from the opaque private credit market. Kaur described the case as "idiosyncratic" and stressed that HSBC's total exposure to the private credit industry is $6 billion, which she called "very small" relative to the bank's $1 trillion balance sheet. "We've always been very mindful of private credit risks," she added.
Market Reaction
HSBC's shares fell more than 5% on Tuesday morning, making it the biggest decliner on the FTSE 100. The decline reflects investor concerns over the bank's exposure to fraud and geopolitical risks.
