HSBC has taken a $1.3bn (£961m) hit to profits, fuelled by the fallout from the US-Israel war on Iran and fraud in the troubled private credit sector.

The London-headquartered bank said profits fell 4% in the first three months of the year, dropping $100m to $9.4bn, compared with the same period in 2025. Revenue increased 6% to $18.6bn.

The profit decline was linked to a jump in the potential losses it could see on soured loans to $1.3bn, which included $300m specifically linked to the impact of the conflict in the Middle East.

HSBC also reported a $400m “fraud-related, secondary, securitisation exposure” in the UK, related to its investment banking division. The bank’s chief financial officer, Pam Kaur, explained that the charge involved loans that HSBC had made to an unnamed private equity group, which was then exposed to private credit-related loans.

While related to fraud, it shines light on the way high street banks could be affected when things go wrong in the world of private credit, and compounds concerns about the opaque nature of the industry.

Kaur said the case was “idiosyncratic” and insisted that the bank was careful in its dealings with the private credit sector. She added that HSBC’s total exposure to the industry was worth $6bn, which she insisted was “very small” compared with the bank’s $1tn balance sheet. “We’ve always been very mindful of private credit risks,” she said.

Kaur said: “In all such situations we do a broad read across, look at all high-risk concentrations and exposures across the board, and we don’t see anything comparable there. But as a follow-up, of course … when we are even exposed in a secondary context to this kind of underlying, business, we have seen what we can do more [of], in terms of the additional due diligence.”

The lender’s shares dropped more than 5%, making it the biggest faller on the FTSE 100 on Tuesday morning.