The Financial Times reported this morning that HSBC has paused a planned $4bn investment into its own private-credit strategy, nearly a year after unveiling it. The bank had intended to use its balance sheet to help build a much larger private-credit platform, with ambitions to compete more credibly against the likes of Apollo and Blackstone. According to the FT report, no money has yet been deployed and there are no current plans to proceed. The pause follows turbulence in American private credit and a roughly $400m hit linked to exposure through an Apollo-owned credit fund.
The old bank meets the new lenders
Private credit was born from a simple post-crisis bargain. After 2008, regulators told banks to hold more capital, lend more carefully and live with lower returns. Asset managers stepped into the gap. They lent directly to companies too small, too indebted or too impatient for public bond markets. Investors liked the promise: floating-rate income, low apparent volatility and an escape from the daily judgement of traded markets.
Source: Statista
The bargain worked spectacularly: the IMF has described private credit as a fast-growing market worth around $2trn. However, it warned that its borrowers tend to be smaller and more leveraged than those using public bonds or syndicated loans. Private-credit portfolios, though broader than before, can also remain highly concentrated inside individual funds, according to research from the Bank for International Settlements (BIS).
HSBC's intended $4bn commitment was not existential for such a large bank, but this was a strategic move. Reuters reported last year that HSBC wanted the capital to seed HSBC Asset Management's alternative-credit funds and attract outside investors, with the aim of building a $50bn credit platform over five years.
HSBC, like other universal banks, has watched alternative asset managers turn corporate lending into a higher-fee, investor-funded business. Banks had first retreated from riskier lending after 2008. Then they sought to re-enter it, not always by putting loans directly on their own balance sheets, but by sponsoring, financing or partnering with private-credit vehicles. The Federal Reserve said in a note that banks and private-credit funds are increasingly connected through lending relationships, raising questions about whether risk has truly left the banking system or merely changed address.
The shadow grows a balance sheet
The difficulty for HSBC is that the cycle has moved on. Private credit flourished when money was cheap, defaults were low and valuations were forgiving. Higher rates have increased the promised coupons, but also made weak borrowers more fragile. The IMF warned that rapid growth, competition to deploy capital and weaker underwriting could increase future credit losses, especially in a market with limited transparency.
The recent case involving Market Financial Solutions, a collapsed British mortgage lender, has sharpened those concerns. The FT report says HSBC's hit came from indirect exposure through an Apollo unit, rather than from a direct loan to MFS. One of the supposed virtues of private credit was discipline: bespoke loans, close monitoring, better covenants. When losses emerge through chains of funds, vehicles and intermediaries, one might wonder who really understood the risk.
HSBC's pause can be interpreted not as a total retreat from private credit as an asset class, but as a retreat from haste. The bank says its exposure remains limited, with about $6bn in pure private credit against a loan book of roughly $1trn, according to the FT report.
