Higher operating costs also impact ring-fenced UK arm
HSBC has reported a decrease in profits for the third quarter, attributing the decline to substantial legal provisions, most of which are related to the Bernard Madoff investment fraud.
The London-headquartered banking giant disclosed that its net profit fell by 21% to $4.87 billion (£3.67 billion) for the July to September period, compared with the same quarter in 2024. Pre-tax profit also declined, dropping 14% to $7.3 billion (£5.5 billion).
The bank’s results were affected by $1.4 billion (£1.05 billion) in legal provisions, including $1.1 billion (£830 million) related to the Madoff fraud case and $300 million (£225.93 million) for historical trading activities under investigation by French authorities. The Madoff provision stems from a Luxembourg lawsuit connected to the former financier’s Ponzi scheme, which collapsed in 2008.
Despite these challenges, HSBC’s revenue increased by 5% to $17.8 billion (£13.4 billion), supported by higher customer activity. Shares in the bank rose in both London and Hong Kong following the announcement.
“Strip out the hefty $1.1-billion Madoff-related provision and other one-offs, and profit before tax rose… to $9.1 billion — a good clip ahead of expectations,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
Russ Mould, investment director at AJ Bell, added: “While the Madoff-linked hit saw profit come in below expectations at a headline level, on an underlying basis, the business is performing well and, crucially, somewhat better than the market was expecting.”
Group chief executive Georges Elhedery (pictured right) commented on the bank’s strategy in the earnings announcement. “We are becoming a simple, more agile, focused bank, built on our core strengths. The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters,” he said.
HSBC has indicated that it expects to deliver a return on tangible equity (RoTE) in the mid-teens or higher for 2025, with similar targets for 2026 and 2027, citing continued momentum and progress in its strategy.
Meanwhile, HSBC UK has reported a 6% decrease in profit before tax, totalling $4.92 billion (£3.71 billion) for the nine months ending Sept. 30.
The bank’s revenue rose 4% to $9.57 billion (£7.22 billion) during the same period, but operating expenses increased by 13% to $1.42 billion (£1.07 billion).
The reduction in profit was attributed to higher operating costs, which the bank said reflected inflationary pressures and increased investment spending.
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