HSBC, Europe’s largest lender, reported a 14% drop in third-quarter pretax profit to $7.3 billion, weighed by higher expenses and legal costs tied to the Bernard Madoff fraud case. Despite the decline, the results topped analyst expectations, driven by stronger lending income and a sharp rebound in wealth-management revenues.
Revenue for the quarter came in at $17.8 billion, ahead of the $17.05 billion consensus estimate compiled by the bank. Profit before tax also beat forecasts of $5.98 billion.
Stronger Income and Strategic Progress
HSBC’s net interest income (NII) rose 15% year-on-year to $8.8 billion, supported by higher interest rates in core markets. The bank now expects full-year banking NII of $43 billion or more in 2025, citing confidence in rate stability in the United Kingdom and Hong Kong.
The wealth division was a standout performer, with income surging 30% year-on-year to $2.68 billion, prompting the lender to forecast double-digit annual growth in fee and other income from the segment over the medium term.
Legal Charges and Hong Kong Expansion Plans
Operating expenses rose 24% from a year earlier, driven by $1.4 billion in legal provisions, including $1.1 billion set aside for potential payouts related to Madoff-linked claims. The charges will trim HSBC’s Common Equity Tier 1 (CET1) capital ratio by about 15 basis points, though the ratio remains comfortably above regulatory minimums.
The Madoff litigation dates back to a 2009 lawsuit by Herald Fund SPC against HSBC’s Luxembourg arm, seeking restitution for funds lost in the Ponzi scheme. The court recently upheld part of the claim, and HSBC said it plans to appeal further in Luxembourg.
Separately, the bank reaffirmed its plan to take its Hang Seng Bank subsidiary private, valuing it at about HK$290 billion ($37 billion). The move underscores HSBC’s long-term confidence in Hong Kong’s role as a leading financial hub, even as Hang Seng continues to face a 6.69% non-performing loan ratio amid property-sector stress.
Market Response and Outlook
Following the announcement, HSBC shares in Hong Kong rose 1.3%. Analysts said the results highlight the bank’s ability to offset legal headwinds with strong core-business growth and steady rate income.
Investors will now watch how HSBC balances its Asia-focused expansion with rising compliance and litigation costs. The bank’s ability to defend its capital base, control expenses, and sustain lending growth will determine whether the upbeat income outlook translates into stronger returns through 2025.
