HSBC Q3 Pre-Tax Earnings Decline Y/Y on Higher ECL, Expenses

HSBC Holdings HSBC reported third-quarter 2025 pre-tax profit of $7.30 billion, which declined 13.9% from the prior-year quarter.Results were primarily hurt by an increase in operating expenses, mainly from notable items, including legal provisions of $1.4 billion. Also, higher expected credit losses and other credit impairment charges (ECL) was a headwind. However, an improvement in revenues supported results to some extent.HSBC’s Revenues Improve, Expenses RiseTotal revenues were $17.79 billion, up 4.6% year over year. The rise was primarily driven by higher net interest income and net fee income.Operating expenses (excluding amortization and impairment of intangible assets) increased 19.9% year over year to $9.12 billion. In the quarter under review, ECL was $1.01 billion, up 2.2% from the prior-year quarter.The common equity tier 1 (CET1) ratio, as of Sept. 30, 2025, was 14.5%, down from 14.9% as of Dec. 31, 2024. The leverage ratio was 5.2%, down from 5.6% as of Dec. 31, 2024.HSBC’s Quarterly Performance by Business LinesThe Hong Kong Business: The segment reported $2.45 billion in pre-tax profit, up 10.4% from the year-ago period. The rise was driven by higher revenues.The UK Business: The segment reported a pre-tax profit of $1.64 billion, down 1% from the year-ago quarter. Higher ECL charges and a rise in expenses resulted in the decline.Corporate and Institutional Banking: Pre-tax profit was $2.55 billion, which decreased 15.6% year over year. The fall was due to higher ECL charges and operating expenses.International Wealth and Premier Banking: Pre-tax profit was $1.29 billion, which increased 9.7% year over year. The rise was driven by higher revenues and lower ECL charges.Corporate Centre: The segment reported a pre-tax loss of $637 million against pre-tax income of $400 million in the year-ago quarter.HSBC’s Capital Distribution UpdateOn Oct. 24, HSBC completed the $3-billion share buyback plan that was announced on July 30, 2025. The company announced a third interim dividend of 10 cents per share for 2025.HSBC Management’s OutlookFor 2025, management expects banking net interest income (NII) of $43 billion or better, changed from the prior mentioned $42 billion. The change reflects increased confidence in the near-term trajectory for policy rates in key markets, including Hong Kong and the U.K.The company anticipates a double-digit percentage average annual growth in fees and other income in the wealth business over the medium term.Operating expenses are expected to rise 3% in 2025 on a target basis.HSBC expects to incur $1.8 billion in expenses by the end of 2026 related to business overhaul. These efforts are likely to result in annualized cost savings of $1.5 billion by the end of 2027.For 2025, ECL charges, as a percentage of average gross loans, are expected to be 40 basis points (bps).For 2025, loan demand is expected to be subdued. Over the medium term, HSBC expects loan growth in the mid-single-digit range.HSBC expects a return on average tangible equity in the mid-teens range or better in 2025, excluding the impact of notable items. For 2026 and 2027, RoTE is expected in the mid-teens.The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.The dividend payout ratio on a target basis is expected to be 50% in 2025, excluding material notable items and related impacts.In the fourth quarter of 2025, HSBC expects to recognize some impacts from strategic transactions that will be classified as material notable items. These include an estimated $1.5-billion loss on the recycling of the cumulative fair value changes on completion of the sale of its French retained portfolio of home and certain other loans.In addition, the company expects to recognize an estimated $0.3-billion loss on the reclassification as held for sale of its Malta business, an estimated $0.1-billion loss on the recycling of reserves associated with its French life insurance business on completion, an estimated $0.1-billion gain on the sale of its German private banking business, which completed on Oct. 3, and an estimated $0.1-billion gain on completion of the sale of its Bahrain retail banking business.Our View on HSBCHSBC’s strong capital position, a global network and business simplification initiatives are expected to support its financials. As part of its focus on optimizing returns, the company is divesting operations in underperforming regions and has exited retail banking across multiple markets. These moves position it for improved operating efficiency. However, higher expenses and rising ECL charges are concerning.HSBC Holdings plc Price, Consensus and EPS Surprise  HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc QuoteCurrently, HSBC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Performance of HSBC’s PeersICICI Bank Ltd.’s IBN profit after tax for second-quarter fiscal 2026 (ended Sept. 30, 2025) was INR123.6 billion ($1.42 billion), up 5.2% from the prior-year quarter.IBN’s results benefited from growth in net interest income and non-interest income, along with lower provisions. The loan balance increased sequentially, which was another tailwind. However, an increase in expenses was the undermining factor for ICICI Bank.Barclays BCS reported third-quarter 2025 net income attributable to ordinary equity holders of £1.46 billion ($1.97 billion), down 6.8% from the prior-year quarter.BCS’s results were hurt by an increase in expenses and higher credit impairment charges. However, an increase in revenues and a solid balance sheet supported the results for Barclays.Quantum Computing Stocks Set To SoarArtificial intelligence has already reshaped the investment landscape, and its convergence with quantum computing could lead to the most significant wealth-building opportunities of our time.Today, you have a chance to position your portfolio at the forefront of this technological revolution. In our urgent special report, Beyond AI: The Quantum Leap in Computing Power, you'll discover the little-known stocks we believe will win the quantum computing race and deliver massive gains to early investors.Access the Report Free Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Barclays PLC (BCS): Free Stock Analysis Report ICICI Bank Limited (IBN): Free Stock Analysis Report HSBC Holdings plc (HSBC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks