HSBC is bullish on 2025 despite hit from Madoff provision
The firm has been undergoing a broad revamp of its businesses
[LONDON] HSBC Holdings raised its profitability outlook for 2025 even as earnings slid following an unexpected US$1.1 billion provision tied to Bernard Madoff’s giant fraud case more than a decade ago.
Pretax profit for the third-quarter fell 14 per cent to US$7.3 billion as litigation expenses blunted rising earnings from its key wealth management business, according to a statement on Tuesday (Oct 28). Revenue beat estimates.
HSBC, which has been undergoing a broad revamp of its businesses, now expects to deliver a “mid-teens or better” return on tangible equity for the year as well as higher-than-previously expected net interest income.
“We are becoming a simple, more agile, focused bank, built on our core strengths,” said chief executive officer Georges 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.”
The numbers come a day after HSBC said that it would book a provision to cover litigation by investors who lost money in the Madoff cases dating back years. It’s also the first earnings after Elhedery unveiled a US$14 billion plan to buy out minority shareholders in subsidiary Hang Seng Bank – a deal that strengthens HSBC’s focus on Hong Kong, its largest individual market and one of its biggest sources of profits.
Its Hong Kong business grew profits before tax by 11 per cent to US$2.5 billion in the quarter, driven by higher client activity across its wealth business. Its UK division saw a 5 per cent decline to US$1.6 billion as operating expenses increased. HSBC has been shutting its mergers and acquisition and equity underwriting operations in the US, UK and continental Europe, causing job reductions in those regions.
Since becoming CEO about a year ago, Elhedery has also struck a noticeably bullish tone on Hong Kong as a financial centre, predicting that the Chinese city will surpass Switzerland by the end of the decade to become the world’s largest cross-border wealth hub. With the acquisition of Hang Seng, he is doubling down on that bet as the special autonomous territory recovers from the pandemic-era lockdowns and sees a resurgence in stock listings and dealmaking, much of it driven by firms based in mainland China.
His move also comes with risks. Though the city accounts for almost a third of HSBC’s profit, it has lately come under focus in the geopolitical conflict between Washington and Beijing. BLOOMBERG
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