HSBC: FTSE 100 lender’s profit slumps as legal costs jump
Europe’s biggest lender, HSBC reported better-than-expected revenue in the third quarter, but recorded a double digit decline in profit as it set aside over a billion dollars following a fresh ruling on the Bernie Madoff fraud scheme.
HSBC’s pre-tax profit fell to $7.3bn (£5.4bn) in the three months to September 30, a fall of nearly 14 per cent from the year prior.
The drop mainly came from the bank’s $1.1bn (£830m) legal provision after a Luxembourg court rejected its appeal in a lawsuit brought by investors who lost money in Madoff’s investment fraud scheme.
The bank recorded overall legal provisions at $1.4bn.
Still, the lender’s revenue hit nearly $18bn, beating expectations by $800m.
HSBC said it expects banking net interest income of $43bn or more in 2025, as it cited increased confidence in the short-term trajectory for policy rates in the business’ top markets such as the United Kingdom and Hong Kong.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “HSBC’s headline numbers might look disappointing at first glance, but dig a little deeper and the story flips.”
“Guidance was the real kicker,” he added.
With “Hong Kong rates trending higher and deposit momentum intact” the upgrades might haven even felt that “conservative” leaving “plenty of room to overshoot,” Britzman said.
Average annual growth in fee and other income in its wealth arm is also forecast to be in the double digits.
The division has been a consistent standout performer across the group’s operation. Hong Kong Wealth fee income increased 61 per cent in the quarter to $646m after a bump in insurance and investment. Comparatively, income from commercial banking slumped three per cent to $282m.
But net operating income including credit impairments took a fall of five per cent to $16.8bn.
HSBC ups provisions for bad loans
HSBC’s return on average tangible equity, a key measure of the lender’s profitability, tumbled to 12.3 per cent – a fall from 15.5 per cent 12 months prior.
The lending giant also set aside $1bn for potential bad loans in its commercial property portfolio as it warned of real estate risks.
The bank said: “Commercial real estate conditions remain challenging in Hong Kong and mainland China.
“In Hong Kong, weak demand and oversupply of non-residential properties continued to put downward pressure on rental and capital values, despite an observed improvement in local sentiment.”
Operating expenses soared to $10.1bn with the addition of the new provision, marking a 24 per cent jump from the year prior.
Excluding notable items target basis operating expenses edged up three per cent to $8.4bn in the quarter.
It comes amid the group’s chief executive Georges Elhedery’s tightening of pockets at the lender, with plans to make $1.5bn in savings by the end of 2026.
As part of Elhedery’s plans, he has split the business into “eastern markets” covering the Asia-pacific and the Middle East and “western” with the Americas and Europe.
“We are becoming a simple, more agile, focused bank, built on our core strengths,” Elhedery said in the third-quarter results.
“The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters.”
HSBC made a HK$106bn ($13.6bn) offer to buy out minority investors in Hong Kong’s Hang Seng Bank.