HSBC has escaped the financial wreckage caused by the collapse of First Brands Group, a bankrupt auto-parts maker that’s left several Wall Street banks counting heavy losses, according to Bloomberg.
On Thursday, HSBC confirmed that it had no exposure at all to First Brands’ failed financing deals, a rare case of staying clean while others are knee-deep in trouble.
Michael Roberts, the bank’s head of corporate and institutional banking, said during a Thursday interview that HSBC was not involved in any way with First Brands.
“We were not involved directly in First Brands and don’t know how much due diligence was done,” Roberts said. He warned that fraud cases in the industry are rising fast, adding that banks have to improve their background checks.
“You’re going to have to respond by being much better on due diligence,” said Roberts. HSBC is now expanding a fraud-detection system across its business units, with a technology that was originally built for trade finance, but Roberts said it’s being applied more widely to detect suspicious funding.
“These types of financing arrangements are going to require much more due diligence, much greater technology, much more understanding of what you are financing,” HSBC’s Roberts said. “I am more concerned and it’s something we’re very focused on.”
Wall Street faces losses as HSBC tightens fraud controls
While HSBC stands clear, JPMorgan Chase is cleaning up damage from a different corner of the market. Chief Executive Officer Jamie Dimon told investors this week that the bank took a $170 million charge linked to Tricolor Holdings, a subprime auto lender.
According to Jamie, failures like those of Tricolor and First Brands could mean there are deeper issues. “When you see one cockroach, there are probably more,” he said. “Everyone should be forewarned on this one.” Jamie admitted the hit from Tricolor was “not our finest moment” and added that his team has been combing through their loan books for other potential risks.
The fallout spread quickly. Jefferies Financial Group received redemption requests from clients who had invested in a fund that financed First Brands. Point Bonita Capital, one of the firms caught in the mess, had nearly a quarter of one of its portfolios tied to the failed company.
And Cantor Fitzgerald is now trying to revise the terms of its acquisition of UBS Group’s O’Connor hedge fund, after discovering how deep the First Brands exposure ran. Losses from the bankruptcy have forced many financial firms to reassess their lending structures, especially those tied to private credit and leveraged deals.
HSBC moves on Hang Seng as others cut losses
As Wall Street scrambles, HSBC is making a very different kind of move in Hong Kong. The bank announced a $14 billion offer to buy the remaining 37% stake in Hang Seng Bank, taking full control of the lender it first rescued during a 1965 crisis.
The offer, set at HK$155 ($20) per share, values Hang Seng at $37 billion, a 30% premium above its market price before the deal was revealed. Since the announcement, Hang Seng’s stock has rallied 27%, while HSBC shares fell about 7% after the bank said it would suspend buybacks for three quarters.
Georges Elhedery, who became CEO just over a year ago, said the decision is purely commercial. “It has nothing to do with bad debt,” he told reporters. “It’s about growth, cost efficiency, and scale.”
Since taking charge, Elhedery has been restructuring operations, cutting smaller markets, and consolidating the group’s biggest base; Hong Kong. The acquisition is meant to boost market share and create “revenue synergies,” allowing Hang Seng’s customers to access HSBC’s broader global network.
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