HSBC's 3rd-quarter profit dips amid falling interest rates, property slump, Madoff suit

HSBC Holdings' third-quarter profit missed analysts' forecasts, as falling interest rates amid a property slump combined with a one-off provision to weigh on the balance sheet of the largest banking group in Europe and Hong Kong ranked by assets.

Net profit fell 25 per cent to US$4.58 billion , or 28 US cents per share, in the quarter that ended in September, HSBC said on Tuesday. The result missed the US$5.38 billion consensus in a survey of 18 analysts conducted in mid-October, before the bank's disclosure on Monday that it would set aside US$1.1 billion as a one-off provision to settle a lawsuit related to the fraud committed by disgraced financier Bernie Madoff.

The London-headquartered bank's pre-tax profit dropped 14 per cent from a year earlier to US$7.3 billion, missing the US$7.66 billion expected by analysts. Top-line revenue rose 5 per cent to US$17.8 billion, mainly driven by higher fee income in the wealth and insurance businesses.

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Still, CEO Georges Elhedery said the bank had become "a simple, more agile, focused bank", during its 160th anniversary of establishment in Hong Kong.

(Left to right) HSBC's Co-Chief Executive of Asia and the Middle East David Liao Yi Chien, Group CEO Georges Elhedery, and chairman of The Hongkong and Shanghai Banking Corporation Peter Wong Tung-shun at HSBC's Main Building in Central on October 9, 2025. Photo: Jelly Tse alt=(Left to right) HSBC's Co-Chief Executive of Asia and the Middle East David Liao Yi Chien, Group CEO Georges Elhedery, and chairman of The Hongkong and Shanghai Banking Corporation Peter Wong Tung-shun at HSBC's Main Building in Central on October 9, 2025. Photo: Jelly Tse>

"The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters", Elhedery said in a statement to the Hong Kong stock exchange. "The positive progress we are making gives us confidence in our ability to upgrade our targets, and we now expect 2025 return on tangible equity excluding notable items to be mid-teens or better."

The bank said it would pay a third-quarter dividend of 10 US cents per share, propelling its stock to rise 3 per cent to HK$105.20 at 1.30pm.

During the quarter, HSBC took US$1 billion of expected credit losses, similar to a year earlier. The exposure includes US$200 million in charges related to the commercial real estate market in Hong Kong. The rest was from the Middle East and the UK.

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The bank set aside funds for potential payouts in a 2009 lawsuit brought by Herald Fund SPC related to Madoff's fraudulent Ponzi scheme, according to a stock exchange filing on Monday. HSBC decided to make the provision after the Luxembourg Court of Cassation last week denied HSBC Securities Services Luxembourg's appeal of Herald's claims for securities restitution, but allowed the HSBC unit to appeal the cash-restitution claim.

Hang Seng Bank in Central, Hong Kong on October 9, 2025. Photo: Jelly Tse alt=Hang Seng Bank in Central, Hong Kong on October 9, 2025. Photo: Jelly Tse>

HSBC announced a plan on October 9 to privatise its Hang Seng Bank subsidiary, offering to buy all outstanding Hang Seng Bank shares for HK$155 each in cash. The cost of the privatisation would only be booked after the subsidiary's shareholders vote to approve the deal in a meeting that has yet to be scheduled. HSBC said it would halt its share-buy-back programme for three quarters, pending the completion of the privatisation.

Hong Kong - the "H" in HSBC's name - remains the bank's largest profit and revenue centre. Pre-tax earnings from the city, including Hang Seng Bank, grew by 11 per cent during the third quarter to US$2.45 billion, or 33.5 per cent of the group's worldwide pre-tax profit.

For the first nine months of the year, HSBC's pre-tax profit shrank 23 per cent to US$23.1 billion. Lower interest rates hurt HSBC's interest income during the third quarter, which dropped 11 per cent to US$24.4 billion, but that was offset by a 21 per cent decrease in interest expense, leading to a 15 per cent increase in net interest income to US$8.8 billion.

HSBC's Hong Kong unit and Hang Seng have set aside a combined US$384 million for bad debts during the quarter, 21 per cent less than a year earlier and 29 per cent lower than the second quarter.

HSBC is on track to achieve about 3 per cent of the cost savings from Elhedery's plan to simplify the group's structure, generating US$400 million in cost savings this year, according to the bank's quarterly report.

Elhedery in the third quarter continued his plan to redeploy US$1.5 billion from "low-return" areas to high-growth ­businesses in Hong Kong, the Chinese mainland, India and other Asian markets. During the quarter, it exited Sri Lanka retail banking and Malta businesses, while opening more new wealth centres in Hong Kong including one on the top floor of the International Commerce Centre (ICC) in September.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.

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