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HSBC’s profits fell by almost a third in the second quarter as Europe’s biggest lender took charge of Chinese banks and acquired costs.
Pre-tax profit fell 29% year-on-year to $6.3 billion, falling short of analysts’ forecast of nearly $7 billion. Operating expenses include retirement costs related to the drastic restructuring of CEO Georges Elhedery, rising 10% to $8.9 billion in the quarter.
The UK-based lender, which generates most of its profits in Asia, recorded an impairment of $2.1 billion in Chinese telecom bank interests after the country’s Treasury recapitalized lenders. Last year, HSBC reported a $3 billion fee on the value of its Bank of China interests.
HSBC’s shares fell more than 4% in London on Wednesday, dragging the wider FTSE 100 index.
Since winning the top post last year, Elghedary’s strategy includes simplifying the bank’s vast global operations and attempting to withdraw exit businesses such as Canadian banking and investment banking in the US.
However, HSBC also competed with long-term real estate slump in Hong Kong and mainland China, and has begun restructuring in addition to taking on a new CEO.
Elghedary on Wednesday spoke in a positive tone despite his weaker income than expected.
“We are suited to further growth due to this period of uncertainty that emphasizes differentiated strength,” he said. “We will continue to simplify our banks, and we are progressing at a pace with the exits of strategic activities,” he added that the bank will remain “on-orbit” to achieve $1.5 billion in annual cost reductions by 2027.
HSBC warned that profitability had been hit indirectly by US President Donald Trump’s tariff system in the coming years, saying the government had planned multiple scenarios, including the worst-case scenario to cut cases as low as 1%.
In signs of a threat posed by the recession, the bank set aside $1.1 billion in the second quarter for bad debts that $954 million analysts had anticipated. The provision included a $0.4 billion fee related to Hong Kong’s commercial real estate sector.
However, Elfada threw a note of optimism about the UK economy, but cited three consecutive trade agreements that the labour government agreed upon as bank revenues failed to meet expectations.
“What’s particularly noteworthy is that we want to call the pace at which the UK has offered many trade deals,” Elhedaly said in a call with a reporter on Wednesday, referring to Keir Starmer’s trade deals with the EU, India and the US.
UK revenue rose 7% in the quarter to $3.2 billion, with its lending balance increasing by $7 billion on a constant currency basis, primarily in the UK.
Like some of its rivals, HSBC has sought to expand its asset management business. International wealth and revenue from the premier banking business rose 19% in the first half of the year.
This was led by the intermediary of private banks, where wealthy clients increase trading activities and benefit from the growth of their insurance business.
Citi analysts said their second quarter results were “supported by very strong performance from wealth.” Under Elhedery, they added, “The strategy continues to take shape, with clear evidence of ongoing cost savings and business simplification.”
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The HSBC warned that French and Swiss authorities are “in the early stages” of investigating Swiss private banks on alleged money laundering crimes related to the two historic bank relationships, and that the impact of the investigation is “potentially significant.”
The bank has also announced a second provisional dividend of 10 cents per share and a plan to buy back shares up to $3 billion.
The FT previously reported that Europe’s biggest lenders have been forced to clean candidates twice to replace Ir Mark Tucker with the chairman as they struggle to find adequate suitable candidates.
Listed banks of London and Hong Kong have not refused to appoint one of the current board members to the role if they are unable to find a suitable candidate. Brendan Nelson will take over as interim chairman when Tucker leaves for insurance company AIA on October 1st.
