HSBC Holdings has completed a “thorough review” of the $400m fraud-related provision reported with its latest results, with chairman Brendan Nelson saying the bank is also changing its risk appetite, reported Bloomberg.
Speaking at the lender’s annual general meeting in London, Nelson said the matter was being treated seriously at board level after the bank took the charge.
“Obviously we cannot comment on names, but clearly fraud of that scale is a serious matter, and we were not very happy in the fact that we had to take the provision against it,” Nelson told shareholders.
The unexpected charge formed part of $1.3bn in expected credit losses for the first quarter.
The provision was connected to the collapse of specialist UK mortgage lender Market Financial Solutions (MFS), the news publication reported citing sources.
In the earnings statement, HSBC referred to the item as a “fraud-related, secondary, securitisation exposure with a financial sponsor in the UK.”
Separately, people told Bloomberg News that the sponsor was Atlas SP Partners, a unit of Apollo Global Management.
Filings from administrators show that two MFS entities had roughly £1bn ($1.36bn) of borrowings from vehicles controlled by Atlas.
Atlas, Apollo’s structured-credit business, had around £400m tied to MFS, equal to about 1% of its balance sheet.
Nelson said HSBC considers its approach to exposures “very cautious” and does not regard the case as “systemic”. He also said the figure remains a provision, with the final loss still uncertain.
On a results call, chief financial officer Pam Kaur called the issue “idiosyncratic” and a “one-off” issue.
“You must rest assured that this is taken extremely seriously within the group and right up to the board level, and that we have conducted a thorough review,” Nelson said. “There will be things that we will potentially look to address.”
He said the review had not uncovered similar fraud concerns elsewhere.
Nelson added that HSBC is adjusting its risk appetite and applying lessons from the due diligence process, while remaining broadly comfortable with private credit.
