HSBC Plans to Transfer Approximately $7 Billion in Corporate Loan Risks in the U.S. and Asia through SRT Transactions

HSBC Holdings is planning two significant risk transfer (SRT) transactions to hedge approximately $7 billion in corporate loan risks in the U.S. and Asia.{#quote_HSBC}

According to insiders, the London-based bank aims to capitalize on investor demand for such loss-absorbing instruments, with one transaction linked to about $3 billion in U.S. loans.

The insiders also indicated that HSBC is discussing another transaction related to approximately AUD 5.8 billion (USD 4 billion) in loans in the Asia-Pacific region. The sources requested anonymity as the information has not been made public.

SRT typically provides risk protection for the first loss or subordinated portion of a loan portfolio, which generally amounts to 5%-15% of the portfolio's value. The issuance of SRTs has surged in recent years, primarily helping banks in Europe and the U.S. transfer risks associated with a total of USD 1 trillion in loans and freeing up regulatory capital for new lending, shareholder returns, or acquisitions.

Despite recent signs that investors are demanding more favorable terms in the face of abundant supply and increased volatility in the credit market, banks are still selling SRTs at a record pace this year. Crescent Capital Group, which invests in such securities, stated that the issuance volume is expected to reach around USD 45 billion this year, with particularly strong growth in transactions hedging risks related to AI assets.{#quote_HX}

Since Georges Elhedery took over as CEO in September 2024, HSBC has been restructuring its business, refocusing on its core Asian markets by closing, selling, or merging several business units and cutting thousands of jobs. The company’s reliance on the Hong Kong market has also increased following its announcement last year of a USD 14 billion acquisition of a stake in Hang Seng Bank.

Other banks are also increasing their SRT transactions. Insiders reported that Banco Santander is finalizing a transaction linked to approximately EUR 4 billion (USD 4.4 billion) in loans to medium-sized enterprises, which is part of its Vela SRT project. The transaction is priced at about 725 basis points above the benchmark rate. The sources requested anonymity as the transaction has not been made public.

Other insiders noted that ING Group is also expected to complete a transaction linked to EUR 4 billion in loans to small and medium-sized enterprises issued by its Belgian operations. This SRT will hedge the subordinated portion of the loan portfolio, amounting to about 5% of the portfolio's value.{#quote_ING}

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