HSBC Q2 Pre-Tax Earnings Dip on Higher ECL, $3B Buyback Plan Unveiled

HSBC Holdings HSBC reported second-quarter 2025 pre-tax profit of $6.33 billion, which declined 29% from the prior-year quarter.

Shares of HSBC slide more than 2.5% in pre-market trading as quarterly performance disappoints investors.

Results were hurt by a fall in revenues, higher expected credit losses and other credit impairment charges (ECL) and higher expenses.

HSBC’s Revenues Fall, Expenses Rise

Total revenues were $16.47 billion, marginally down year over year. The fall was primarily due to lower other operating income.

Operating expenses increased 10% to $8.92 billion. 

In the quarter under review, ECL was $1.07 billion, up substantially from $346 million in the prior-year quarter. The jump in ECL was mainly due to charges related to the Hong Kong real estate sector.

The common equity tier 1 (CET1) ratio, as of June 30, 2025, was 14.6%, down from 15% as of June 30, 2024. The leverage ratio was 5.4%, down from 5.7% in the prior-year quarter.

HSBC’s Quarterly Performance by Business Lines

The Hong Kong Business: The segment reported $2.13 billion in pre-tax profit, down 13% from the year-ago period. The fall was due to a jump in ECL charges.

The UK Business: The segment reported a pre-tax profit of $1.73 billion, down 2% from the year-ago quarter. Higher ECL charges and a rise in expenses resulted in the decline.

Corporate and Institutional Banking: Pre-tax profit was $2.84 billion, which decreased 4% year over year. The fall was due to higher ECL charges and operating expenses.

International Wealth and Premier Banking: Pre-tax profit was $904 million, which declined 16% year over year. The decline was due to higher operating expenses.

Corporate Centre: The segment reported a pre-tax loss of $1.28 billion against pre-tax income of $658 million in the year-ago quarter.

HSBC’s Capital Distribution Update

HSBC returned $9.5 billion to its shareholders through dividends and share buybacks in the first half of 2025. 

Further, the company announced a second interim dividend of 10 cents per share and a new share buyback authorization of up to $3 billion. The repurchase plan is likely to be completed before the announcement of the third-quarter results.

HSBC Management’s Outlook

For 2025, management expects banking net interest income (NII) of $42 billion.

The company anticipates a double-digit percentage average annual growth in fees and other income in the wealth business over the medium term.

Operating expenses are expected to rise 3% in 2025 on a target basis.

HSBC expects to incur $1.8 billion in expenses by the end of 2026 related to the business overhaul. These efforts are likely to result in annualized cost savings of $1.5 billion by the end of 2027.

For 2025, ECL charges, as a percentage of average gross loans, are now expected to be 40 basis points (bps), a change from the prior estimation of 30-40 bps. This is because of challenging market conditions in the Hong Kong real estate sector.

For 2025, loan demand is expected to be subdued. Over the medium term, HSBC expects loan growth to be in the mid-single-digit CAGR range.

HSBC expects a return on average tangible equity in the mid-teens from 2025 to 2027, excluding the impact of notable items.

The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.

Our View on HSBC

HSBC’s strong capital position, relatively higher interest rates, a global network and business simplification initiatives are expected to support its financials. However, higher expenses, rising ECL charges and subdued revenues on weak loan demand are concerns. Further, a challenging operating environment is also likely to affect the company’s profitability.
 

HSBC Holdings plc Price, Consensus and EPS Surprise

HSBC Holdings plc price-consensus-eps-surprise-chart | HSBC Holdings plc Quote

Currently, HSBC carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of HSBC’s Peers

Barclays BCS reported second-quarter 2025 net income attributable to ordinary equity holders of £1.66 billion ($2.22 billion), up 34% from the prior-year quarter’s level.

An increase in revenues and a solid balance sheet supported the results. However, Barclays recorded a rise in credit impairment charges and operating expenses in the quarter.

Deutsche Bank DB reported second-quarter 2025 earnings attributable to its shareholders of €1.49 billion ($1.75 billion) against the loss attributable to its shareholders of $143 million in the year-ago period.

This Germany-based lender reported a profit before tax of €2.4 billion ($2.8 billion), up from $411 million in the year-ago quarter.

Deutsche Bank’s results benefited from increased revenues and lower expenses. Lower provision for credit losses was another positive.

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