Published by Global Banking and Finance Review
Posted on October 28, 2025
By Selena Li and Lawrence White
HONG KONG/LONDON (Reuters) -HSBC Holdings boosted its income outlook and vowed to shift into growth mode with its takeover of Hang Seng Bank in Hong Kong, despite a hefty drop in third-quarter profit due to $1.4 billion in legal charges.
HSBC said it now expects to make $43 billion in net interest income this year, an increase of $1 billion from its June estimate, as it looks forward to slower-than-expected rate cuts in key markets such as Hong Kong and Britain.
The bank also nudged up its return on equity target to the mid-teens or better, from an earlier estimate of mid-teens.
"We always take a very conservative stance," Chief Financial Officer Pam Kaur told reporters on a conference call on Tuesday.
"And so for us to upgrade a guidance it just shows our confidence in the business and its performance going forward."
Shares in Europe's biggest bank were up 3% in London, in line with gains for its Hong Kong-listed stock and outperforming a flat benchmark FTSE 100 index.
MADOFF HANGOVER
"Overall we view these as strong underlying results, which should provide reassurance after recent share price weakness on Hang Seng and litigation announcements", Citi's analysts said in a research note.
Pretax profit tumbled 14% to $7.3 billion for the third quarter, tarnished by $1.1 billion in charges after losing part of an appeal in a lawsuit tied to Bernard Madoff's Ponzi scheme. The bank also made a $300 million provision against French authorities' investigations into European banks' dodging of dividend tax payments.
The Madoff-related provision was flagged on Monday. Before that, expectations were for a pretax profit of $7.66 billion, according to a consensus estimate from analysts compiled by the bank.
There were, however, few clues on who HSBC's next chairperson might be - a key issue for investors. Former Chairman Mark Tucker, who was hugely influential, said in May he would step down from the role and departed in September. Kaur said only that the search remains underway.
HINDERED BY WRITEDOWNS
The drive by Elhedery - a HSBC veteran who assumed the chief executive role a year ago - to improve profit has been hampered by major litigation, ongoing restructuring and charges related to the property sector.
HSBC has booked $5 billion in writedowns on its China bank holding over the last few quarters, while losses from deteriorating Hong Kong commercial real estate loans have climbed - causing the bank to upgrade its credit loss model.
In the first nine months of this year, HSBC logged an increase of $900 million in charges for non-performing loans compared to the same period last year, with two-thirds of that amount arising from exposure to Hong Kong property.
Elhedery has shaken up the bank by reorganising operating divisions along East-West lines, shedding sub-scale investment banking units and slashing the ranks of senior managers.
As well as announcing exits from 11 underperforming markets and businesses so far this year, he has signalled a willingness to invest where he thinks the bank can further grow.
HSBC, which has a market value of $226 billion, announced in October it is offering $13.6 billion to buy out other shareholders in its majority-owned Hang Seng Bank.
Hang Seng has been hit hard by its local property exposure, inviting speculation that HSBC needed to bail it out, but HSBC has pushed back against that idea.
"I think what you should read from the Hang Seng deal is, HSBC is open to growth. We want to invest for growth where we feel that we have a competitive advantage," Kaur said.
(Reporting by Selena Li in Hong Kong and Lawrence White in London; Additional reporting by Sumeet Chatterjee; Editing by Edwina Gibbs)
