HSBC shows explosive potential as results beat forecasts 

HSBC Holdings (LSE:HSBA) has rounded off the UK bank sector reporting season in some style, with a strong end to 2025 removing the impact of a messy third quarter.

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Headline pre-tax profit of $29.9 billion (£22.1 billion) was 2.4% lower than the previous year, but above the expected $28.9 billion, and the group ground out a 7% increase if you exclude notable items. The previous $2.1 billion charge for losses related to its Chinese Bank of Communications stake and $1.4 billion of legal provisions contributed to the overall $4.9 billion headwind, where there were marginally higher credit impairments given the difficult commercial real estate situation in Hong Kong and mainland China. 

Even so, annual revenue rose by 4% to $68.3 billion, ahead of estimates of $67.4 billion and underpinned by strong showings across the piece. For the fourth quarter alone, revenues rose by 42% to $16.4 billion and pre-tax profit to $6.8 billion from $2.3 billion in the corresponding period.

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Indeed, its four units each contributed to the rising income number. The largest, Corporate and Institutional Banking, saw revenue growth of 3% to $27.6 billion, followed by its other businesses in order of size, with gains of 6% to $15.9 billion for Hong Kong, 6% to $12.9 billion for the UK and 5% to $14.5 billion for International Wealth and Premier Banking.

The other key metrics also remain in fine fettle. The Return on Tangible Equity (ROTE) excluding notable items rose from 15.6% to 17.2%, Net Interest Margin increased from 1.56% to 1.59%, while Net Interest Income (NII) grew by 6.4% to $34.8 billion, with Banking NII which excludes funding costs up by $300 million to $44.1 billion, ahead of the expected $43.5 billion. Elsewhere, the provisions dragged on a cost/income ratio which rose to 53.4% from 50.2%, with the CET1 ratio, or capital cushion, remaining stable at 14.9% and in excess of the group’s target. 

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Importantly, the momentum also resulted in HSBC upping its guidance for the coming year, with ROTE expected in excess of 17% (and indeed for the following two years), revenue growth of 5% by 2028 and NII in excess of $45 billion. Such financial firepower also enabled a further increase to the dividend, leading to a projected yield of 4.3%, notwithstanding the previous disappointment of a briefly suspended share buyback programme in order to fund the Hang Seng Bank acquisition.

For all the noise, there is also evidence of growing success for its strategic plan, which is significant but simple. Whereas HSBC had been moving towards becoming a business with a slavish reliance on interest rate movements and levels, the revised and increasing focus on the growth in affluent wealth, especially in Asia, is key to the new offering. The group has been investing heavily in this move, giving HSBC higher, but more diversified income streams. 

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Apart from the longer-term potential for the key Chinese market, the group previously identified areas such as India and Vietnam as being some of the fastest growing economies at present, while the building economic connections between Asia and the Middle East, notwithstanding any geopolitical conflicts, are also emerging opportunities for HSBC with its sprawling footprint. 

Indeed, underneath the bonnet there are many signs of comfort, leading to the conclusion that HSBC is easily able to forge ahead with its growth ambitions and, despite the immediate drain on some of its capital resources given the provisions and Hang Seng Bank acquisition, the likes of HSBC already have an established and trusted brand in the Asia region which by definition provides an advantage.

Investors have been keen to acknowledge this explosive potential, with the shares having risen by 47% over the last year, as compared to a gain of 23% for the wider FTSE100 index, and by 116% over the last two years as the sector has undergone something of a rerating. 

HSBC may not be at the top of the pack given the perception of more balanced growth elsewhere in the sector, but the market consensus of the shares as a cautious buy nonetheless reflects the stability and major financial strength which investors will always appreciate.