HSBC Pulls Back From the $3.5 Trillion Private Credit Market After Major Bankruptcies

Europe's biggest bank is pulling back from a $3.5 trillion market.

HSBC has told some of its clients in the last few weeks that it will not renew certain loans or give them back leverage. Back leverage is money banks lend to private credit funds so those funds can make bigger loans to companies. HSBC is Europe's biggest bank by total assets, and it's now pulling back from the riskiest part of private credit lending.

This is not a full exit. The bank says it's still going to support deals for its most important clients, and it's keeping a broader private markets business running. In its official statement, HSBC says it wants a smooth process with strong oversight, and that it's focusing on the regions and strategies where it sees the most growth potential. Private credit is still only a small part of the bank's overall lending business.

What actually changed is how much risk HSBC is willing to take on. The bank is now putting its money toward lower risk private credit funds and backing away from deals where the potential reward doesn't justify the risk anymore.

The change comes after a clear run of failures.

In late 2025, two big US companies went bankrupt and showed serious issues. Tricolor Holdings and First Brands Group both had cases of double pledging collateral, which effectively means using the same assets as security for more than one loan. Complicated multi-layer financing that was hard to see through was also evident, along with weak checks on receivables and assets.

Tricolor was a lender that gave car loans to people with poor credit. It filed for Chapter 7 liquidation in September 2025. Investigators said there was widespread fraud, including making fake copies of vehicle identification numbers so the same cars could be used for multiple loans.

First Brands, an auto parts supplier, filed for Chapter 11 bankruptcy the same month. It owed more than $10 billion. A lot of that debt was held by CLOs and private credit funds.

These two cases made people start asking hard questions about how carefully specialty finance firms and highly leveraged private equity-backed companies were checking their loans.

MFS was a UK lender offering short-term property loans. It collapsed and went into administration in late February 2026 with a loan book worth somewhere between £2 billion and £2.4 billion.

Creditors said the company had pledged the same real estate as collateral for more than one loan at a time, over and over again. That left a shortfall of somewhere between £930 million and £1.3 billion, meaning that on large parts of the loan book, the actual collateral was worth over 80% less than what it was supposed to cover.

HSBC felt the impact of this collapse. In its first quarter results of 2026, released in May, the bank took a $400 million charge tied directly to the MFS collapse.

But HSBC hadn't lent money to MFS directly. The connection ran through a company called Atlas SP Partners, which is owned by Apollo and took over parts of Credit Suisse's old asset-backed lending business. HSBC had lent money to Atlas, and Atlas had used that money to help finance MFS. So when MFS fell apart, the losses travelled back up that chain and landed on HSBC's books.

Barclays also took a hit from the same collapse, booking a related charge of £228 million.

This whole episode is a clear example of how losses in private credit can move quietly through layers of companies and financial structures, making it hard to see where the real risk is sitting until something actually breaks.

It's getting harder and more expensive for private credit funds to borrow against their own loans, and due diligence checks are getting longer.

That's going to slow deployment across the market, particularly for smaller or higher risk managers who relied on cheap bank leverage to compete.