HSBC $HSBA (-0,15 %) is considering a strategic move into the thriving private credit market, Reuters reported, citing five informed sources. The potential move is part of the bank's ongoing efforts to boost its revenues following a period of significant restructuring and downsizing in its investment banking division.
HSBC has reportedly begun talks with several private credit firms about a possible partnership. However, these discussions are at different stages and it is unclear whether they will result in a formal partnership.
Despite the growth and potential of the private credit sector, HSBC is expected to take a cautious approach. Some senior executives, including CEO Georges Elhedery, have expressed doubts as to whether the potential revenues will outweigh the associated costs.
This cautious approach is also influenced by the current economic climate. The comprehensive tariffs introduced by US President Donald Trump have affected short-term demand for credit. As a result, corporate borrowers are reconsidering their positions, prompting HSBC to take a cautious approach.
Private credit comprises loans negotiated directly between borrowers and non-bank lenders, offering customized financing options not typically available from traditional banks. This offers investors an alternative income-generating opportunity within the fixed income segment of their portfolios.
In February, Fed Governor Michael Barr provided insights into the private credit market and explained the risks involved. Barr argues that private credit markets funded with long-term money face transparency issues, unproven credit performance over a credit cycle, frequent restructurings that mask defaults, and new liquidity risks from the introduction of short-term liquidity into products not designed for it.
