HSBC Report Profit Growth in 3Q24 Amid Revenue Expansion and Strategic Challenges

Highlights

• Profit Surge: HSBC's profit before tax for 3Q24 increased by $0.8 billion, reaching $8.5 billion, mainly due to revenue growth in key banking sectors.
• Revenue Growth: Revenue rose 5% to $17.0 billion, bolstered by increased activity in wealth management and global markets, despite a $0.4 billion loss from security redemptions.
• Strategic Moves: HSBC continues to reshape its portfolio, with major disposals completed and plans for further divestments, including the sale of its Argentina business.

HSBC Holdings plc (LSE:HSBA) reported robust financial results for the third quarter of 2024, with notable profit increases despite ongoing challenges in interest rates and strategic transactions. The company saw a significant rise in revenue, driven primarily by its Wealth and Personal Banking (WPB) and Global Banking and Markets (GBM) divisions. However, net interest income faced a downturn, and higher operating expenses persisted.

Key Financial Highlights

• Profit Before Tax: HSBC's profit before tax for 3Q24 surged by $0.8 billion to $8.5 billion compared to the same period in 2023. The profit increase was propelled by revenue growth in WPB and GBM, particularly in Foreign Exchange, Equities, and Global Debt Markets. Despite these gains, the quarter was impacted by a $0.3 billion loss related to the early redemption of legacy securities. In contrast, the 3Q23 results were affected by $0.6 billion in losses from Treasury repositioning and risk management.
• Revenue Growth: The bank's revenue rose by $0.8 billion or 5% to $17.0 billion, reflecting higher customer activity in WPB's wealth products, supported by volatile market conditions. On a constant currency basis, revenue grew by 7%. Losses from the early redemption of securities and Treasury repositioning amounted to $0.4 billion.
• Net Interest Income (NII): Despite the overall growth, HSBC experienced a decline in net interest income, which dropped by $1.6 billion to $7.6 billion, primarily due to higher interest expenses on liabilities and losses from the early redemption of legacy securities. The bank's net interest margin (NIM) fell by 24 basis points year-over-year to 1.46%, largely due to increased funding costs.

Expense and Lending Dynamics

Operating expenses for the quarter increased by 2% to $8.1 billion, driven by inflationary pressures and investments in technology. However, strategic cost discipline helped offset some of these expenses, particularly with the completion of disposals in Canada and France. Lending balances also saw growth, rising by $30 billion compared with 2Q24. On a constant currency basis, the lending increase was $2 billion, driven by strong performance in WPB and Commercial Banking (CMB).

Customer accounts grew by $67 billion, largely from term deposits in Hong Kong and short-term inflows amid market volatility. Despite these gains, GBM saw only stable deposits as outflows from a large client were offset by growth in mainland China and the US.

Outlook and Strategic Developments

Looking ahead, HSBC remains focused on delivering a mid-teens return on average tangible equity (RoTE) for 2024 and 2025, excluding the impact of notable items. The bank's guidance for net interest income of approximately $43 billion in 2024 remains unchanged. HSBC is also managing expected credit loss (ECL) charges, which are forecast to remain within its medium-term range of 30 to 40 basis points of average gross loans.

The company continues to execute on its strategic reshaping initiatives. Following the completion of its Canadian banking business sale, HSBC expects to finalize the sale of its Argentina business by the fourth quarter of 2024. The bank's common equity tier 1 (CET1) capital ratio improved to 15.2%, with the Board approving a third interim dividend of $0.10 per share and an additional share buy-back plan of up to $3 billion.