- Earnings dented by provisions
- Asian property markets weak
- Bank qualifies its outlook
Normally, news of a $3 billion share buyback would be enough to get shares in global bank HSBC (HSBA) rallying, especially when the buyback is due to be completed in less than three months’ time.
These aren’t normal times, however, and instead shares in the bank – the second-largest company in the FTSE 100 by market weight – fell 44p or 4.5% to 926p, although that still leaves them up a respectable 18% since the start of the year.
NEGATIVE SURPRISE
With operations in Asia, Europe and the US, HSBC is a truly global player, which means its results are full of moving parts and are sometimes hard to compare with prior years, especially when the bank buys or sells assets meaning comparisons are not strictly like-for-like.
That was certainly the case with the half-year numbers, which excluded the banking businesses in Canada and Argentina after their sale last year meaning group revenue for the first half of 2025 was 9% or $3.2 billion lower than last year at $34.1 billion.
The absence of the Canadian and Argentine units wasn’t the core reason for investors’ disquiet, however – that was due to a $2.1 billion provision for losses at its Chinese associate BoCom, or Bank of Communications (3328:HKG), which contributed to a 26% drop in profit before tax to $15.8 billion against the consensus estimate of $16.5 billion.
The Chinese property market has been in the doldrums for some time and there are growing concerns the Hong Kong property market could start to weigh on the asset quality of Asian banks, especially if local developers get into financial difficulty.
HSBC said it had increased its overall loan loss provisions due to ‘an increase in allowances for new defaulted exposures, as well as the over-supply of non-residential properties putting continued downward pressure on rental and capital values’.
It also said its provisions included ‘allowances to reflect heightened uncertainty and a deterioration in the forward economic outlook due to geopolitical tensions and higher trade tariffs’.
LESS ROSY OUTLOOK
As a global bank, HSBC argued it was ‘well positioned’ to manage potential volatility in economic forecasts and financial markets and it stuck to its RoTE (return on tangible equity) target of mid-teens percent from 2025 to 2027.
That said, it cautioned that ‘a disruptive tariff scenario that includes significant reductions in policy rates, together with broader macroeconomic deterioration’ would see its RoTE miss its mid-teens targeted range in future years.
The bank also raised its forecast for expected credit losses, driven mainly by concerns over the Hong Kong commercial real estate market.
