HSBC profits slump after multibillion-dollar China charge

Times

30-07-2025

A multibillion-dollar hit in China and rising costs to push through job cuts have delivered a bigger-than-forecast blow to profits at HSBC.
The Asia-focused bank unnerved investors on Wednesday by reporting a 26.7 per cent slide in first-half profits to $15.8 billion, worse than the $16.5 billion that had been expected by City analysts.
The results were affected by a $2.1 billion writedown the lender booked on its stake in the Shanghai-based Bank of Communications (BoCom), as well as a jump in bad loan impairments to $1.9 billion in the six months that was driven partly by HSBC's exposure to trouble brewing in Hong Kong's commercial real estate market.
Operating expenses, which include severance costs, also climbed by a bigger-than-forecast 10 per cent to $8.9 billion in the second quarter as Georges Elhedery, HSBC's new chief executive, forged ahead with a wide-ranging overhaul of the sprawling group to find $1.5 billion of annualised savings by 2027.
In a further blow, HSBC also warned that the economic fallout from President Trump's tariffs could mean the bank falls short of its returns target in coming years. Shares in the FTSE 100 lender fell by 38¼p, or 3.9 per cent, to 931¾p in afternoon trading in London.
The first-half update lays bare the challenges facing Elhedery, who was previously HSBC's finance chief and took charge of the group in September.
While based in London, the bank was originally founded in Hong Kong and looks to China and Asia more broadly as its engine of growth. This has provided a tailwind for HSBC as Asian economies have rapidly expanded.
However, in recent years, it has also left the bank exposed to mounting strains in China's property market, as well as rising geopolitical tensions between the East and West, which have escalated significantly after Trump this year imposed sweeping tariffs on countries including China, which became embroiled in a tit-for-tat trade war with the US.
In February, Elhedery set out his plan to restructure the group by cutting duplicated roles. He argued on Wednesday that 'in this environment it has become increasingly important to simplify the organisation and make it more agile'.
The bad loan impairment included a $400 million charge in the second quarter related to problems in Hong Kong's office market, where there is 'some oversupply', Elhedery said. He insisted, however, that the issues were restricted to less than 5 per cent of the bank's real estate exposure in the former British colony and that bosses are 'very comfortable with our position'.
The writedown on HSBC's investment in the Chinese state-owned BoCom, which has also wrestled with the country's property woes, was partly to account for the impact of a capital injection into the lender by Beijing's Finance Ministry earlier this year. It was larger than expected and followed a $3 billion impairment on HSBC's stake early last year.
Disruptions in global trade represent another potential problem for HSBC, which is the world's biggest trade bank. Elhedery said that HSBC had modelled an extreme downside situation in which the global economy shrank and interest rates fell to 1 per cent.
In such a scenario, management's confidence in meeting their target of generating a return on tangible equity in the mid-teens in the three years to 2027 'will be tested', Elhedery conceded.
Despite the threat of gathering storm clouds, there was a fillip for investors as the bank announced that it would return as much as $3 billion to shareholders through a stock buyback. It also declared a 10 cents-a-share interim dividend that will distribute a further $1.74 billion.
Behind the story
HSBC's Swiss private banking business is being investigated over possible money-laundering offences in a blow to a lender that has previously been censured for financial crime failures.
The bank disclosed in its half-year results on Wednesday that law enforcement agencies in Switzerland and France were in the early stages of scrutinising alleged offences 'in respect of two historical banking relationships'.
'Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant,' it said.
It is another setback for the FTSE 100 bank, which in 2012 paid a $1.9 billion penalty in the US over alleged anti-money-laundering failures and sanctions violations, a scandal in which HSBC was accused of facilitating the cleansing of at least $881 million in dirty money for Mexican drug cartels. This affair also resulted in the British bank entering into a deferred prosecution agreement with the US Department of Justice, which expired at the end of 2017.
Separately, the Financial Conduct Authority, the British regulator, fined HSBC £63.9 million in 2021 for anti-money-laundering failures between 2010 and 2018 that may have benefited criminals ranging from terrorist financiers to modern slavers.
Other regulatory action against the bank has included a £23.4 million fine this February from the Competition & Markets Authority for alleged misconduct by one of its traders in the UK government bond market. Three other banks were also fined by the CMA over this affair.