HSBC reported on Tuesday that third-quarter profit before tax rose 32% from a year earlier to $9.6 billion. Europe's largest bank also announced a share buyback of up to $1 billion, to be completed by the end of the year, and its board approved a third interim dividend of 10 cents per share.
Revenue rose to $18.6 billion from $17.8 billion in the same period last year, an increase of 5% on a reported basis. Banking net interest income rose 6% to $11.66 billion, and fee income grew in the corporate and institutional banking and wealth businesses.
INTEREST INCOME, COSTS AND IMPAIRMENTS
Net interest income reached $9.3 billion in the third quarter, supported by deposit growth and higher yields from reinvestments in the bank's structural portfolio. Net interest margin remained stable at 1.57%.
Operating expenses fell 12% year on year to $8.8 billion, largely because legal provisions recorded a year earlier did not recur. Those provisions amounted to $1.4 billion in the third quarter of the previous year, and their absence partly explains the improvement in reported earnings. Credit impairment charges fell 17% to $832 million, mainly on lower charges for Hong Kong commercial real estate exposures and reduced charges in the UK and Mexico.
Profit after tax climbed 38% to $7.57 billion. Excluding notable items and on a constant-currency basis, pre-tax profit increased 10% to $10.02 billion.
RETURNS AND CAPITAL POSITION
Annualised return on average tangible equity (RoTE) improved to 17.7% from 12.3% a year earlier. The cost-efficiency ratio narrowed to 47.4% from 56.6%, while the common equity tier 1 (CET1) capital ratio stood at 13.9%, down from 14.1% at the end of June.
RESULTS AGAINST EXPECTATIONS
Pre-tax profit of $9.63 billion compared with $7.30 billion a year earlier but fell short of Bloomberg's estimate of $9.7 billion. The result largely met analysts' estimates compiled by the lender.
Brokerage consensus had pointed to revenue of $18.93 billion and net interest income of $11.9 billion. Analysts had also expected earnings per share of 42 US cents and a quarterly dividend of 10 US cents, unchanged from the previous year. Goldman Sachs had forecast a smaller buyback of $500 million, down from $1 billion in the second quarter, citing negative effects on other comprehensive income from continued loan growth, rising rates and a steeper yield curve.
TARGETS, ANALYST VIEWS AND STAFFING
HSBC maintained its RoTE target of 17% or better in 2026, 2027 and 2028, excluding notable items. It also reiterated its expectation for 2026 banking net interest income of at least $46 billion and operating expense growth of approximately 1% on a target basis.
Ahead of the results, another strong quarter was expected for the wealth management business, although risk sentiment is softer. The bank has said it has not seen any significant impact from China's tightening measures on client fund flows or new client acquisition. HSBC may also see growth in earnings per share in the medium term, benefiting from structural themes such as Asian wealth management, capital market activity and yuan internationalisation. Goldman Sachs lowered its target price to HK$192 from HK$193, kept its London target at 1,860 pence and rated the shares "Buy".
CNBC reported that the results come as HSBC is considering significant job cuts in its UK wealth management business, as part of a broader push to adopt artificial intelligence.
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