HSBC Q3 2025 Earnings: Profit Falls on Legal Provisions, Revenue Rises 5%

Credit costs contained

Expected credit losses were $1.0bn, broadly unchanged from 3Q24. The charges mainly reflected stage 3 wholesale exposures, including $0.2bn of incremental charges to Hong Kong commercial real estate, a $0.1bn charge against a Middle Eastern exposure and charges on a small number of UK exposures. Releases from a stabilising macro backdrop helped to offset these.

Costs: two stories in one

Reported operating expenses jumped 24% to $10.1bn thanks to the legal provisions and restructuring costs. On a “target basis” (management’s steady‑state lens that excludes notable items and some translation and disposal effects), costs were $8.4bn, just 3% higher year on year, consistent with the 2025 guidance of about 3% growth.

Business lines: who did what

• Hong Kong: PBT of $2.45bn, up 11% on a constant currency basis, with powerful wealth fee growth offsetting softer banking NII due to lower HIBOR.
• UK: PBT of $1.64bn, down 5% on constant currency. Banking NII rose 7% on the structural hedge and lending growth, but ECL and investment in tech and resilience lifted costs.
• Corporate and Institutional Banking: PBT of $2.55bn, down 16% constant currency. Banking NII was up 3%, but fee income fell in FX and in Debt and Equity Markets given quieter markets. Expenses were heavier due to notable items and restructuring.
• International Wealth and Premier Banking: PBT of $1.29bn, up 8% constant currency. Broad‑based strength across Insurance, Private Bank and investment distribution.
• Corporate Centre: pre‑tax loss of $0.64bn, reflecting the $1.1bn legal provision; revenue benefited from the non‑recurrence of last year’s legacy securities loss.

Balance sheet, capital and shareholder returns

Customer lending increased by $1.2bn versus 2Q25, or $5.6bn on a constant currency basis, with growth in UK mortgages and commercial lending and private banking in Asia. Customer accounts rose by $18.6bn, or $25.5bn on a constant currency basis, with deposits up across Asia, Europe, the UK, the Middle East and the US.

The CET1 ratio was 14.5%, down 0.1 percentage points from 2Q25, reflecting recognition of the $1.4bn legal provisions, partly offset by lower risk‑weighted assets. Liquidity remains strong, with an LCR of 139%.

The Board approved a third interim dividend of $0.10 per share. HSBC also completed the previously announced $3bn share buy‑back on 24 October. However, buy‑backs are being paused for the time being as the Group pursues its proposal to privatise Hang Seng Bank Limited. If approved, the transaction is expected to have a day‑one capital impact of about 125 bps, with management planning to rebuild CET1 within the 14%‑14.5% target range through organic capital generation and by not initiating buy‑backs during the process. The dividend payout ratio target basis for 2025 remains 50% excluding material notable items.

Risks and hot spots to watch

• Hong Kong commercial real estate: ECL of $0.2bn in the quarter and $0.7bn year to date. Market conditions remain challenging, particularly outside residential property.
• Market activity: FX and Debt and Equity Markets fees were softer amid lower volatility. A pickup in volatility could help, but another quiet quarter would keep pressure on CIB fees.
• Buy‑back pause: the temporary halt to buy‑backs is a short‑term headwind for capital returns, albeit in service of a strategic transaction.

Outlook and my take

Guidance is encouraging. Management expects RoTE excluding notable items to be mid‑teens or better for 2025, with seasonally lower 4Q factored in, and maintains mid‑teens targets for 2026 and 2027. Banking NII guidance is nudged up to $43bn or better for 2025, ECL remains guided at around 40 bps of average gross loans, and target‑basis cost growth stays at about 3%.

In plain English: the core engine is sound. Wealth is growing nicely, the structural hedge and deposits are supporting NII despite lower rates, and credit charges are well behaved. The £ Elephant in the room is the legal drag and the temporary buy‑back pause due to the proposed Hang Seng Bank transaction. Those are real headwinds for sentiment, but they do not change the underlying earnings power, which is why the upgraded RoTE and NII guidance matters.

Net‑net, this is a “good under the bonnet” quarter masked by extraordinary items. If you care about long‑term earnings and dividends, the mid‑teens RoTE pathway and 50% payout ratio target basis are the lines to underline. Near term, expect a seasonally softer Q4 due to lower Wealth activity and items like the UK bank levy, but the trajectory into 2026 remains constructive.

9M25 context for the bigger picture

For the first nine months, reported profit before tax was $23.1bn, down $6.9bn year on year, largely because 2024 benefited from disposal gains in Canada and Argentina. 9M25 also includes $2.1bn of dilution and impairment losses related to Bank of Communications, $1.4bn of legal provisions and $0.8bn of restructuring costs. On a constant currency basis and excluding notable items, profit before tax rose 4% to $28.0bn and RoTE excluding notable items improved to 17.6%.

Bottom line

HSBC delivered 5% revenue growth and strong Wealth momentum, while NII held firm. The quarter’s headline profit decline was driven by legal provisions, not by fundamentals. Capital stays robust at 14.5% CET1, a $0.10 dividend is coming, and the strategic direction remains focused on simplification, capital discipline and expansion in Wealth and transaction banking. If management executes on the upgraded mid‑teens RoTE target and $43bn+ banking NII, the equity story stays compelling, even with the temporary buy‑back pause.