Pretax profit of $9.63 billion was roughly in line with forecasts, but revenue missed, Wealth fee income was flat and the capital ratio slipped below HSBC's target range. A new $1 billion buyback did not hold the stock.
HSBC reported a headline that looked like a blowout. Investors read the rest of the release.
The bank said third-quarter profit before tax rose 32% to $9.63 billion, roughly in line with the $9.7 billion average of analysts' forecasts compiled by the bank. Revenue rose 5% to $18.62 billion, short of the $18.93 billion that compilation expected. HSBC announced a buyback of up to $1 billion and a third interim dividend of $0.10 a share.
The shares fell 5.56% in Hong Kong to HK$134.30 and were down 6.83% at 1,272.2 pence in London early on Tuesday.
What drove the 32%
Most of the profit increase came from what did not happen this year. A year earlier, HSBC booked legal provisions of about $1.4 billion that did not recur. Excluding notable items, pretax profit rose 10% to $10.02 billion. That is solid growth, but a third of the headline rate.
Credit costs helped: expected credit losses fell 18% at constant currency. Reported operating expenses fell 12%, but almost all of that was the absent legal provision; on HSBC's target basis, costs rose 1.4%. Net interest income rose 6% to $9.31 billion.
Where revenue fell short
The weak spot was wealth. Fee and other income from Wealth was flat at $2.69 billion, after growth of 15% in the first quarter and 23% in the second, according to Reuters. Revenue in the International Wealth and Premier Banking division fell 3% at constant currency on lower fee income and net interest income, with Wealth hurt mainly by insurance one-offs a year earlier that did not repeat. In Hong Kong, profit rose 8% at constant currency, but the bank cited pressure on time-deposit margins from competition.
The investment bank was the strong side. Corporate and Institutional Banking revenue rose 10% at constant currency, with debt and equity markets up 70%.
The capital ratio
The common equity tier 1 ratio fell to 13.9% from 14.1% at the end of June, below HSBC's target range of 14% to 14.5%. HSBC expects the buyback to take about 0.1 percentage point off the ratio in the fourth quarter, and expects final Basel 3.1 rules to add about 0.4 to 0.5 percentage point on Jan. 1, 2027. Running below the range in the meantime leaves less room for error if markets turn.
HSBC kept its targets, including a return on tangible equity, excluding notable items, of 17% or better through 2028. "We remain confident in achieving the targets we set out in February 2026," the bank said. Its annualized return on tangible equity was 17.7% in the quarter, or 18.2% excluding notable items.
Two readings
One reading is that the business is healthy. Underlying profit grew 10%, returns are above target, the investment bank is strong, and analysts at Citi and Jefferies, while calling the results slightly underwhelming, said wealth balances and private-banking trends point to a better business than the revenue line shows.
The other is that the quarter exposed the parts investors had been paying for. Wealth was the growth story, and it stalled. Revenue missed, the capital ratio dipped below range, and the stock, which had already fallen from its August peak, dropped about 7% in London.
What to watch
Wealth fee income in the fourth quarter, the path back into the 14% to 14.5% capital range as Basel 3.1 takes effect, net interest income as rates and deposit competition shift, and the reaction in European and Asian bank shares.