Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
HSBC’s profits declined 14 per cent in the third quarter as Europe’s largest lender took a hit from a provision for a lawsuit related to Bernard Madoff’s Ponzi scheme.
Pre-tax profits fell year on year to $7.3bn in the three months to September 30, largely because of a $1.1bn provision that HSBC set aside for a lawsuit brought by investors who lost money in Madoff’s Ponzi scheme after a Luxembourg court denied the bank’s appeal.
Operating expenses, which include one-off provisions and severance costs linked to chief executive Georges Elhedery’s continuing restructuring plan, climbed 24 per cent to $10.1bn.
“We are becoming a simple, more agile, focused bank, built on our core strengths,” said Elhedery. “The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters.”
Net interest income rose 15 per cent to $8.8bn, while net fee income rose 12 per cent to $3.5bn. However, net operating income including credit impairments declined 5 per cent to $16.8bn.
The bank’s return on average tangible equity, a measure of profitability, fell to 12.3 per cent from 15.5 per cent in the third quarter of 2024.
HSBC also warned of commercial real estate risks, setting aside $1bn for expected credit losses, including from Hong Kong and UK commercial property loans, slightly higher than last year and above analyst expectations.
This brings the total it has set aside for loans it classifies as having “objective evidence of impairment” to $6.8bn.
“Commercial real estate conditions remain challenging in Hong Kong and mainland China,” the bank said. “In Hong Kong, weak demand and oversupply of no-residential properties continued to put downward pressure on rental and capital values, despite an observed improvement in local sentiment.”
Elhedery took over HSBC last year and kicked off a worldwide overhaul that included shutting its investment bank in the US and Europe and pulling out of some markets. The bank on Tuesday said it would review its retail operations in Australia, Egypt and Indonesia.
One bright spot for the UK-based lender, which generates the bulk of its profits in Asia, has been Chinese wealth. In Hong Kong, fee income from wealth management increased 61 per cent to $646mn, driven by insurance and investment, while income from commercial banking in the territory fell 3 per cent to $282mn.
In Elhedery’s first strategic move that involves spending money rather than cost-cutting, HSBC made a HK$106bn ($13.6bn) offer to buy out minority investors in Hong Kong’s Hang Seng Bank.
HSBC announced a third interim dividend this year of $0.10 a share, which comes after it said it would pause buybacks for three quarters in order to fund its planned privatisation of Hang Seng.
HSBC shares rose 3 per cent in Hong Kong on Tuesday.
