HSBC to Infuse $4 Billion Into Private Credit Funds Amid Profit Push

HSBC Holdings PLC HSBC is set to deploy $4 billion into its private credit funds to drive profits higher. Nicolas Moreau, CEO of HSBC Asset Management (HSBC AM), revealed it in an interview with Reuters.

Rationale Behind HSBC’s Initiative

HSBC’s move comes amid a broader push by banks into lucrative markets as profits from traditional lending have been shrinking.

Rapidly growing private credit market offers lending to companies that aren’t highly regulated, allowing higher margins for the banks. Banks have been attempting to expand into private credit either through collaborations with existing players or by building out their ventures.

Last month, UBS Group AG UBS collaborated with General Atlantic to focus on private credit opportunities. This alliance between UBS and General Atlantic will focus on offering senior secured direct lending financing to firms in North America and Western Europe.

Further, in March, Deutsche Bank DB joined forces with DWS Group to develop private credit origination and investment opportunities for DWS clients across the private credit space. This will likely boost Deutsche Bank’s profitability as it rides on the rising demand for private credit offerings.

HSBC will inject the cash into HSBC AM's alternative credit funds, aiming to attract additional capital through external investors to build a $50 billion credit fund within five years.

Moreau stated, “It's an arms race. Having greater HSBC group backing for its private credit funds would help the firm attract external money.”

HSBC AM’s private credit unit has allocated roughly $7 billion across 150 transactions since its launch in 2018. Additional funds will be invested globally with an initial emphasis on regions, including direct lending in the UK and Asia.

Other Restructuring Efforts by HSBC

This move aligns with HSBC CEO Georges Elhedery's strategy to boost revenues in areas that generate higher returns rather than only relying on bank loans that offer lower returns.

Last week, Reuters reported that the bank is set to exit its business banking unit in the United States. The company has already exited its retail banking business in the country in 2021.

The bank has been undertaking a global restructuring of its operations, with a focus on markets where it anticipates higher profitability. It has divested businesses in France, Canada, Greece, New Zealand, Argentina and Armenia, as well as its retail banking operation in Mauritius.

Furthermore, HSBC is scaling back its mergers and acquisitions and equity capital markets operations in the United States, the U.K. and Europe, while focusing on profitable regions such as Asia and the Middle East.

Simultaneously, HSBC intends to redeploy an additional $1.5 billion from the low-returning activities or non-core operations into core business areas, reinforcing its focus on the Asia region. The bank is progressing with divestment in Germany, Bahrain and South Africa and is reviewing its operations in Malta.

HSBC Price Performance & Zacks Rank

Shares of HSBC have gained 24.9% in the last six months compared with the industry’s growth of 22.1%.

Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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