(Oct 28): HSBC Holdings plc said it is reviewing its exposure to smaller banks and hedge funds that have large private credit businesses, as the market comes under scrutiny following the high-profile collapses of First Brands Group and Tricolor Holdings in recent months.
“What is very important in these situations is to consider the second- and third-order risks exposure of other smaller banks or hedge funds that we may be dealing with, and that becomes a primary focus for us,” Pam Kaur, the chief financial officer of the British lender, said on a media call on Tuesday after the bank announced its earnings.
Kaur said that HSBC’s own direct exposure to private credit is small, in the “single-digit billion”, and the firm follows a “very rigorous” credit framework for all lending transactions.
“So from a direct exposure perspective, I am very comfortable,” she said. “We are monitoring the situation very carefully.”
The failures of subprime auto lender Tricolor and auto-parts supplier First Brands have put private credit under the spotlight, with JPMorgan Chase & Co CEO Jamie Dimon warning of the potential for more such cases. “When you see one cockroach, there are probably more,” Dimon said. “Everyone should be forewarned on this one.”
In a Bloomberg Television interview earlier this month, Michael Roberts, HSBC’s head of corporate and institutional banking, said the lender wasn’t directly involved in First Brands, and added fraudsters were “getting” better and the banking industry needed to up its game.
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“You are going to have to respond by being much better on due diligence,” Roberts said.
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