The MFS collapse reveals how opaque credit chains can silently transmit losses across dozens of global lenders
Nearly a year after declaring private credit “an arms race,” HSBC has quietly shelved plans to deploy US$4bn into its own asset manager's private credit funds and has no current plans to revive them, two sources familiar with the matter told the Financial Times.
The bank announced the commitment in June 2025, positioning it as a way to leverage its US$3.2tn balance sheet and compete alongside alternatives giants such as Apollo and Blackstone.
HSBC's head of asset management Nicolas Moreau told Reuters at the time that “we see this as an arms race.”
Now, according to the Financial Times, executives have grown wary amid wobbles in the US private credit market.
“We are committed to our asset management's offering in private credit funds,” an HSBC spokesperson told Reuters, without addressing whether the US$4bn would ever be deployed.
The retreat follows a US$400m charge HSBC absorbed in the first quarter, linked through a chain of lending to Apollo-backed unit Atlas SP, which had financed the now-collapsed UK specialist mortgage lender Market Financial Solutions, the Financial Times reported.
Unlike rivals Barclays and Santander, HSBC had not lent directly to MFS, making its indirect exposure via Apollo's private credit unit a striking illustration of how opaque credit chains can transmit losses through the financial system.
According to Financial Times, HSBC said its private markets exposure represented only 2 percent of its total US$1tn loan book, with “pure” private credit at just US$6bn.
The charge helped push first-quarter pretax profit to US$9.4bn, below the US$9.59bn analyst consensus and the US$9.5bn posted a year earlier.
HSBC shares fell more than 6 percent on results day before recovering to post a 12 percent gain year-to-date, Reuters reported.
The bank revised its 2026 credit loss guidance to 45 basis points of average gross loans, from 40 bps, citing “uncertainty in the outlook,” the Financial Times added.
CNBC reported that MFS provided bridge financing, a type of short-term loan to asset-rich but cash-poor borrowers outside traditional lending channels, with a loan book reckoned at more than £2.4bn.
The firm entered insolvency on February 25 amid fraud allegations, including “double pledging,” where the same real estate assets were pledged as collateral against multiple loans, and a reported £1.3bn shortfall between collateral value and what MFS owed creditors.
Founder Paresh Raja, based in Dubai, has denied wrongdoing.
The fallout has spread well beyond HSBC.
Barclays took a US$308m hit, Santander faces a reported US$267m exposure, Elliott Management holds £200m in exposure, and Wells Fargo's stands at £143m, CNBC reported citing insolvency documents referenced by the Financial Times.
Jefferies has roughly £103m in total exposure including a US$20m loss already taken, CNBC added.
Sumit Gupta, CEO of Oxane Partners, told the same outlet the MFS situation shows how fragmented data across managers, servicers, and financing vehicles makes it hard to see risk clearly.
The lesson, he said, is that “complex funding chains need equally robust operating controls.”
The MFS losses are landing as the broader private credit market shows widening strain.
MSCI data showed that private credit funds have marked down more than a tenth of their loans by at least 50 percent, the highest level since the COVID-19 pandemic, with smaller funds hit hardest, Reuters reported.
Private debt fund returns slumped to 1.8 percent in the fourth quarter of 2025 from 3.7 percent six months earlier, and a third of investors surveyed by MSCI said they lacked access to private market data they fully trusted.
Wealthy investors have meanwhile queued to withdraw money from private credit vehicles amid concerns over weakening lending standards and AI disruption risk to software-heavy portfolios.
Some managers have moved to limit redemptions, Bloomberg added.
Regulators are responding.
CNBC reported that the Financial Stability Board warned Wednesday that the sector's opaque valuation practices and complex funding structures are creating vulnerabilities across broader markets.
The FSB estimated US$220bn in bank credit lines to private credit funds, noting commercial data suggested the true figure could be twice as large.
Canada's banking regulator has launched a review of lenders' exposure, Reuters reported, while CNBC said the Bank of England is running stress tests alongside the industry, with deputy governor Sarah Breeden flagging concerns over asset quality and liquidity.
