HSBC’s Transformation Amid Profit Decline
HSBC’s chief executive has indicated that a significant restructuring of Europe’s largest bank is close to finishing, even as the bank grapples with a drop in annual profits.
Georges Erhederi, set to take over as CEO in 2024, expressed intentions for HSBC to evolve into “a simpler, more agile and focused bank built for a rapidly changing world.”
Last year, HSBC’s pre-tax profit fell by 7% to $29.9 billion, coupled with one-time expenses of $4.9 billion (around £3.6 billion). It’s worth noting, though, this figure exceeded Citi analysts’ expectations by about $1 billion and followed an unexpectedly strong performance in 2024.
In a move to bolster investor confidence, the bank announced it would raise its return on tangible equity target. It plans to increase this from the mid-teens target for the next three years to at least 17% by 2028, up from last year’s goal of 13.3%.
Shares listed in Hong Kong saw a 2.5% increase following the announcement of these results.
The bank faced significant charges last year, including a $2.1 billion write-off linked to the Bank of Communications. This was largely influenced by the prolonged downturn in China’s real estate market.
Consequently, pre-tax profits for HSBC’s mainland China operations plummeted by 66%, landing at $1.1 billion.
Additionally, the bank accounted for $1.4 billion in legal provisions and another $1 billion related to restructuring costs.
Since Mr. Elhederi took the helm a year and a half ago, he has made notable changes, reorganizing business units to align with east-west operations, cutting smaller investment banking operations in the U.S. and Europe, and reducing senior management levels.
Last year, HSBC began to exit 11 different business ventures globally.
These transformations contributed to the stock’s impressive rise of 50% in 2025, followed by another 10% rise this year, pushing the bank’s market value to around $300 billion.
In another major move, HSBC privatized its subsidiary, Hang Seng Bank, in a deal valued at $13.7 billion. The bank announced a goal of achieving $900 million in pre-tax revenue and cost synergies by 2028 through the integration of both companies’ banking operations, noting that it would incur about $600 million in restructuring costs.
HSBC also revealed plans for a final dividend of 45 cents per share, in addition to the 30 cents distributed earlier in the year. However, this total falls short of the 87 cents paid in 2024.
Mr. Elhederi’s total compensation is set to reach £6.6 million in 2025, marking an 18% increase from the previous year.
Analysts at Jefferies expect investors to react positively to the strong results, but may raise eyebrows at the forecast predicting only a 1% rise in costs for 2026, given the competitive landscape and the necessity to invest in AI technology.
HSBC appointed Brendan Nelson, a former KPMG partner, as chairman last December after an extensive search for a permanent executive left the position vacant for several months.
