HSBC Q3 Profit Declines Amid Legal Provisions

HSBC Holdings plc (LON: HSBA) released its 3Q25 earnings on Tuesday, revealing a decline in reported profit before tax, although the bank upgraded its full-year RoTE target.

The financial giant's performance reflects both strategic progress and the impact of significant one-off items.

Reported profit before tax for 3Q25 stood at $7.3 billion, a $1.2 billion decrease compared to 3Q24. This reduction primarily stems from a $1.4 billion legal provision related to historical matters, impacting operating expenses. Most notably, this included a legal provision relating to developments in a claim in Luxembourg relating to the Bernard Madoff Investment Securities LLC fraud.

However, revenue growth, fueled by banking net interest income (NII) and a strong showing in Wealth management, partially offset this decline.

Excluding notable items, constant currency profit before tax reached $9.1 billion, a 3% increase year-over-year. Revenue growth in Wealth management drove this increase, although planned investments and inflationary pressures led to higher operating expenses.

Annualized return on average tangible equity (RoTE) was 12.3% in 3Q25, down from 15.5% in 3Q24. When notable items are excluded, the annualized RoTE rises to 16.4%, a 0.5 percentage point increase compared to the previous year.

Revenue increased by 5% to $17.8 billion, driven by fee and other income growth within the Wealth segment. Banking NII also contributed to this growth. However, fee and other income declined in Global Foreign Exchange and Debt and Equity Markets due to reduced client activity amid lower market volatility.

Net interest income (NII) rose by 15% to $8.8 billion, benefitting from deposit growth, structural hedges, and the non-recurrence of a loss from early redemption of legacy securities. Banking NII specifically increased by 4% to $11.0 billion.

Expected credit losses (ECL) remained stable at $1.0 billion, primarily related to stage 3 charges on wholesale exposures, including those in the Hong Kong commercial real estate (CRE) sector. These charges were partially offset by releases resulting from a stabilized macroeconomic outlook.

Operating expenses increased by 24% to $10.1 billion, reflecting legal provisions, restructuring costs, and higher planned investments in technology. Excluding notable items, operating expenses rose by 3%.

Customer lending balances saw a $1.2 billion increase compared to the previous quarter, driven by commercial lending and mortgages in the UK. Customer accounts also increased by $18.6 billion, fueled by growth in Corporate and Institutional Banking (CIB) across various regions.

The Common Equity Tier 1 (CET1) capital ratio decreased slightly to 14.5%, impacted by the legal provisions. The board has approved a third interim dividend for 2025 of $0.10 per share. HSBC completed a $3 billion share buy-back program in October.

Looking ahead, HSBC expects to deliver a mid-teens or better RoTE for 2025, excluding notable items. The company also anticipates banking NII of $43 billion or better in 2025.

Georges Elhedery, Group CEO, stated, “We are becoming a simple, more agile, focused bank, built on our core strengths,” reinforcing the company’s strategic focus.

He added that the company is upgrading its targets and now expects 2025 RoTE excluding notable items to be mid-teens, or better.