HSBC profits fall amid $400m fraud-related charge and Iran war

London-headquartered bank’s shares slide as it sets aside an extra $300m to cover effects of Middle East conflict

HSBC has taken a $1.3bn (£961m) hit to profits, amid the fallout from the US-Israel war on Iran and fraud in the troubled private credit sector.

The London-headquartered bank said profits fell 4% in the first three months of the year, dropping $100m to $9.4bn, compared with the same period in 2025. Revenue increased 6% to $18.6bn.

The profit decline was linked to a jump in the potential losses it could see on soured loans to $1.3bn, which included $300m specifically linked to the impact of the conflict in the Middle East.

HSBC also reported a $400m “fraud-related, secondary, securitisation exposure” in the UK, related to its investment banking division. The bank’s chief financial officer, Pam Kaur, explained that the charge involved loans that HSBC had made to an unnamed private equity group, which was then exposed to private credit-related loans.

The case reportedly relates to the collapse of the home loan lender Mortgage Financial Solutions (MFS), to which HSBC was exposed through loans made to Apollo’s asset-backed lending unit Atlas SP, according to the Financial Times, which cited people familiar with the matter. HSBC refused to confirm the names of the companies involved in the suspected fraud.

It comes days after HSBC’s UK rival Barclays said it had taken a £228m hit from MFS, which collapsed in February amid allegations of fraud. The UK’s financial regulator has launched an investigation into the scandal.

While related to fraud, the HSBC charge shines light on the way high street banks could be affected when things go wrong in private credit, and compounds concerns about the opaque nature of the industry.

Kaur said the case was “idiosyncratic” and that the bank was careful in its dealings with the private credit sector. She added that HSBC’s total exposure to the industry was worth $6bn, which was “very small” compared with the bank’s $1tn balance sheet. “We’ve always been very mindful of private credit risks,” she said.

Kaur added: “In all such situations we do a broad read across, look at all high-risk concentrations and exposures across the board, and we don’t see anything comparable there. But as a follow-up, of course … when we are even exposed in a secondary context to this kind of underlying business, we have seen what we can do more, in terms of the additional due diligence.”

The lender’s shares dropped more than 5%, putting it among the biggest fallers on the FTSE 100 on Tuesday.

Despite the $300m put aside to protect against defaults linked to the Iran war, Kaur downplayed the impact of the conflict on HSBC’s operations. She said that while some clients were borrowing more money, business deals were still “flowing through”.

“In terms of ongoing activity on the ground, we don’t see as many changes. And more importantly, credit portfolio has remained resilient through this period as well,” Kaur told reporters.

“This is very similar to what we see in times of stress,” she said, noting that some of the money put aside in the aftermath of Russia’s full-scale invasion of Ukraine was eventually released. “And this time around, obviously we’d see how the conflict progresses and, and if we see stability in our books, we would release those reserves.”

The finance chief added that the bank would continue investing in its Middle Eastern wealth business, and that while some bank staff went abroad during recent holidays, most had returned to their desks. “For now, most people are back, and we just hope that things stay stable over the next few weeks.”