London, May 12, 2026, 11:09 BST
Administrators for collapsed UK mortgage lender Market Financial Solutions have accused owner Paresh Raja in a London lawsuit of misappropriating at least £1.3 billion, sharpening scrutiny of the chain of exposures that left HSBC with a $400 million private-credit provision. Raja, who is in Dubai, denies the allegations, the Financial Times reported.
The accusations land days after HSBC Chair Brendan Nelson told shareholders the bank had “substantially completed” a review of lending policies after the provision. Nelson said the bank had looked at similar facilities for lessons and, so far, saw the matter as “one-off rather than anything systemic.” Reuters
That is why MFS matters now. Private credit is lending by funds or other non-banks, often to borrowers or asset pools outside public debt markets. FSB Secretary General John Schindler said the ecosystem is increasingly marked by “deepening interconnections” among asset managers, banks, insurers and private equity firms — exactly the sort of channel now under the microscope. Reuters
HSBC’s first-quarter results put a hard number on the problem. Expected credit losses — reserves for loans that may not be repaid — rose to $1.3 billion, driven partly by a $0.4 billion “fraud-related, secondary, securitisation exposure” with a UK financial sponsor and a $0.3 billion increase tied to the Middle East conflict. A securitisation is a structure that packages loans or other cash-flowing assets. HSBC
Reuters reported the HSBC provision was linked to lending to Apollo-backed Atlas SP and Atlas’s financing of MFS. Atlas had disclosed in February that it had a 400 million-pound exposure to MFS after the lender entered administration following fraud allegations; HSBC finance chief Pam Kaur declined to identify the firms but confirmed the exposure was to “private credit-related loans.” Reuters
Kaur tried to ring-fence the hit. On the analyst call, she called the charge “idiosyncratic” and said HSBC had not found “comparable fraud concerns” after reviewing high-risk areas; the bank had also updated its risk appetite and due-diligence processes.
Peers are not cleanly outside the story. Barclays took a £228 million hit from MFS and said it was pulling back from lending to riskier borrowers. Barclays Chief Executive C.S. Venkatakrishnan said fraud cases “will only continue to increase in frequency” and pointed to the need for stronger defences. The Guardian
Regulators were already in the file before HSBC’s disclosure. Britain’s Financial Conduct Authority opened an enforcement investigation into MFS in March, saying the firm was supervised for anti-money-laundering and fund-transfer compliance, not wider financial regulation. Reuters reported that Barclays, Jefferies and Apollo-affiliated Atlas SP Partners were among lenders with exposure, and that Bank of England prudential officials had sought information from lenders.
The global watchdog is worried about the pipes, not just one lender. The Financial Stability Board said private credit had grown to an estimated $1.5 trillion to $2 trillion at the end of 2024 and warned of bank links, weaker borrower credit quality and opaque valuations. Available data captured around $220 billion of direct bank credit lines to private-credit funds, it said.
Bank of England Deputy Governor Sarah Breeden had put it more bluntly in April. In private credit, she said, “leverage is a layer cake” across borrower, fund and sponsor levels, making risks hard to measure; she also named MFS, Tricolor and First Brands as defaults that had sharpened attention on the sector. Bank of England
The pressure is not limited to bank balance sheets. KKR said on Monday it would put $300 million into FS KKR Capital after the private-credit fund reported growing losses and a sharp fall in net asset value. Non-accruals — loans no longer paying interest or unlikely to be repaid — rose to 4.2% of the portfolio’s fair value from 3.4% at the end of December.
The counterpoint is that HSBC says the case is narrow. Kaur told reporters the bank had reviewed high-risk concentrations and did not see anything comparable; if recoveries from MFS improve, the charge may prove conservative. The risk is the other way: poor collateral recoveries, or another indirect exposure surfacing late, would make it harder for banks to argue they understood what sat beneath the structures they financed.
