HSBC has reported a 4% decline in profits for the first quarter of 2025, as the bank faced a $1.3bn hit from the fallout of the US-Israel war on Iran and a fraud case in the private credit sector. The London-headquartered bank's shares fell by more than 5% on Tuesday, making it one of the biggest fallers on the FTSE 100.
Profit and Revenue Figures
HSBC said its profit before tax fell by $100m to $9.4bn in the first three months of the year, compared with the same period in 2025. Revenue, however, increased by 6% to $18.6bn. The profit decline was primarily driven by a jump in expected credit losses and other provisions, which rose to $1.3bn, up from $900m a year earlier.
Impact of the Iran Conflict
The bank set aside an additional $300m to cover potential losses from soured loans linked to the conflict in the Middle East. Chief Financial Officer Pam Kaur downplayed the impact, stating that while some clients were borrowing more, business deals were still flowing. She noted that the bank had previously set aside reserves after Russia's invasion of Ukraine, which were later released, and that a similar approach would be taken if stability returns.
Fraud-Related Charge
HSBC also reported a $400m charge related to a fraud case in the UK, involving its investment banking division. The charge stems from loans made to an unnamed private equity group, which was exposed to private credit loans linked to the collapse of home loan lender Mortgage Financial Solutions (MFS). MFS collapsed in February amid fraud allegations, and the UK financial regulator has launched an investigation. HSBC refused to confirm the names of the companies involved.
Kaur described the case as "idiosyncratic" and said the bank was careful in its dealings with the private credit sector. She added that HSBC's total exposure to the industry was $6bn, which was "very small" compared with the bank's $1tn balance sheet. The bank is conducting additional due diligence to prevent similar issues.
Market Reaction and Outlook
HSBC's shares dropped more than 5% on Tuesday, reflecting investor concerns over the charges. Despite the setbacks, Kaur said the bank would continue investing in its Middle Eastern wealth business and that most staff had returned to their desks after recent holidays. She expressed hope that the situation would remain stable in the coming weeks.
The profit decline comes days after HSBC's UK rival Barclays reported a £228m hit from MFS. The scandal has raised concerns about the opaque nature of the private credit industry and its potential impact on high street banks.
