Credit losses overshadow HSBC quarter despite solid revenues

HSBC’s quarter was dominated by a sharp and unexpected jump in credit losses, which took the shine off otherwise solid trading and pushed profits just below expectations. A $400m fraud-related loss in the UK drove a marked rise in bad loan charges and has put fresh focus on the risks sitting within more complex lending, even as the rest of the loan book remains stable.

Profits were broadly flat on last year, as higher income was absorbed by rising costs and credit charges. Revenues grew 4%, slightly ahead of expectations, helped mainly by fees rather than interest income. Wealth management continued to perform well, though growth has slowed from last year’s pace.

The credit charge was the clear surprise. Total loan losses rose to $1.3bn, driven by the UK fraud case alongside more cautious assumptions linked to the Iran conflict and a weaker global outlook. There were no meaningful signs of stress in Hong Kong or mainland China commercial property, which will be a relief to investors. While the UK loss has raised questions about private credit and structured lending, it appears to be a one-off rather than evidence of broader problems.

Costs were also higher in the quarter, reflecting bonus accruals, but HSBC stuck to its guidance for modest cost growth over the year, supported by ongoing efficiency savings.

Returns remain a strong point. HSBC delivered a return on tangible equity of 18.7% and reiterated its aim to sustain returns above 17% over the next three years. Capital dipped to the bottom of the target range following the Hang Seng minorities deal, with buybacks remaining on hold for now but likely to resume from next quarter given the current capital position.

Looking ahead, guidance has been lightly adjusted. Expected interest income has been nudged higher, but this is offset by a more cautious view on loan losses, reflecting ongoing uncertainty. Overall, the results point to a bank still generating strong returns, but one being reminded that isolated credit issues can still cut through in a more volatile environment.