20-F: HSBC Reports Strong Underlying Profit, Raises RoTE Target to 17%+

HSBC Holdings plc announced robust underlying financial performance in 2025, raising its Return on Average Tangible Equity (RoTE) target to 17% or better for 2026-2028, despite a reported profit decline due to notable items.

Summary

• Reported profit before tax decreased by $2.4 billion to $29.9 billion in 2025, primarily due to a $4.9 billion net adverse impact from notable items.
• Constant currency profit before tax, excluding notable items, increased by $2.4 billion to $36.6 billion, a 7% rise compared to 2024.
• Reported revenue increased by $2.4 billion (4%) to $68.3 billion, driven by fee and other income growth in Wealth and Wholesale Transaction Banking.
• Net interest income (NII) rose by $2.1 billion, reflecting structural hedge reinvestment at higher yields and deposit growth, partly offset by $1.6 billion adverse impact from business disposals.
• Net interest margin (NIM) increased by 3 basis points to 1.59%.
• Expected Credit Losses (ECL) were $3.9 billion, an increase of $0.4 billion from 2024, including charges related to commercial real estate (CRE) sectors in Hong Kong ($0.7 billion) and mainland China ($0.2 billion).
• Operating expenses increased by $3.4 billion (10%) to $36.4 billion, including $3.0 billion in notable items such as legal provisions ($1.4 billion) and restructuring costs ($1.0 billion).
• Target basis operating expenses grew by 3% to $33.5 billion, in line with targets, reflecting planned technology investment, higher performance-related pay, and inflation.
• Customer lending balances increased by $57.7 billion (reported) and $17.6 billion (constant currency), mainly in the UK.
• Customer accounts rose by $131.9 billion (reported) and $67.6 billion (constant currency), with significant growth in Hong Kong.
• The Common Equity Tier 1 (CET1) capital ratio remained stable at 14.9%.
• A total ordinary dividend of $0.75 per share was announced for 2025, along with $6 billion in share buy-backs.
• The privatization of Hang Seng Bank was completed on January 26, 2026, making it a wholly-owned subsidiary and is expected to generate $0.5 billion in pre-tax revenue and cost synergies by end of 2028.
• Organizational simplification actions delivered $1.2 billion in annualised cost savings in 2025, ahead of the planned June 2026 target for $1.5 billion.
• Wealth balances grew by 16% to $2.1 trillion, with net new invested assets of $80 billion, including $39 billion in Asia.
• Over 100 Generative AI (GenAI) solutions are in use, with 85% of colleagues having access to the HSBC Productivity Suite tool.
• The Board approved a fourth interim dividend of $0.45 per share for 2025, payable on April 30, 2026.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive signal, driven by robust underlying financial performance, successful strategic execution, and ambitious forward-looking targets, despite the reported profit decline being attributable to specific notable items.

Positives

• Constant currency profit before tax, excluding notable items, increased by 7% to $36.6 billion.
• Revenue, excluding notable items, rose by $3.6 billion, driven by strong fee and other income growth in Wealth and Wholesale Transaction Banking.
• Net interest income (NII) increased by $2.1 billion, benefiting from structural hedge reinvestment at higher yields and deposit growth.
• Return on Average Tangible Equity (RoTE) excluding notable items was 17.2%, surpassing the mid-teens target and increasing by 1.6 percentage points from 2024.
• A total ordinary dividend of $0.75 per share was announced for 2025, an increase of 14% on the prior year's ordinary dividend.
• Completed $6 billion in share buy-backs in 2025, contributing to total shareholder returns of $18.9 billion.
• Organizational simplification actions delivered $1.2 billion in annualised cost savings in 2025, ahead of the planned $1.5 billion target by mid-2026.
• Wealth balances grew by 16% to $2.1 trillion, with net new invested assets of $80 billion, including $39 billion in Asia.
• Hong Kong business maintained market leadership with 25.4% deposit market share and achieved a record high Net Promoter Score (NPS) in Retail Banking and Wealth.
• UK business saw customer loans increase by 6% to over $300 billion and maintained a strong mortgage market share of 8.1%.
• Corporate and Institutional Banking (CIB) generated $13.1 billion in fee and other income, up 7%, and was recognized as Euromoney's World's Best Trade Finance Bank for the ninth consecutive year.
• International Wealth and Premier Banking (IWPB) revenue increased by 5%, with wealth fee and other income up 24%.
• Over 100 Generative AI (GenAI) solutions are in use, with 85% of colleagues having access to the HSBC Productivity Suite tool, enhancing productivity and customer experience.
• The privatization of Hang Seng Bank is expected to generate $0.5 billion in pre-tax revenue and cost synergies by the end of 2028.
• Achieved an Inclusion Index score of 78% against an ambition of 75% in the employee engagement survey.
• Reduced absolute operational greenhouse gas emissions (scope 1, 2 and business travel) by 84.9% from the 2019 baseline.
• Increased purchase of electricity from renewable sources to 94.2%, on track for 100% by 2030.

Negatives

• Reported profit before tax decreased by $2.4 billion (7%) due to a $4.9 billion net adverse impact from notable items.
• Notable items in 2025 included dilution and impairment losses of $2.1 billion related to associate Bank of Communications Co., Limited (BoCom), reserve recycling losses of $1.5 billion from the sale of the French retained loan portfolio, legal provisions of $1.4 billion, and restructuring costs of $1.0 billion.
• Expected Credit Losses (ECL) increased by $0.4 billion to $3.9 billion, including higher charges in the Hong Kong commercial real estate (CRE) sector ($0.7 billion).
• Operating expenses increased by $3.4 billion (10%) on a reported basis.
• Share of profit in associates and joint ventures decreased by $1.0 billion (34%), primarily due to a $1.0 billion impairment loss on the BoCom investment.
• The US dollar depreciated through 2025, and elevated volatility is expected to persist, reflecting concerns over fiscal sustainability and complex policy environments.
• Unemployment rose across many major markets in 2025, with a risk of further increases if layoffs grow or AI-driven productivity reduces labor demand.
• The mainland China property market remains weak with government stimulus yet to trigger material improvement in buyer sentiment, and refinancing risks continue.
• The Hong Kong office property sector is expected to keep pressure on rents and capital values in 2026 due to oversupply.
• The CET1 capital ratio may fall below the target range of 14-14.5% during January 2026 due to the Hang Seng Bank privatization, with a net impact of 110 basis points.

Risks

• Changes in general economic conditions, including new/deepening recessions, prolonged inflationary pressures, and fluctuations in employment levels.
• Geopolitical tensions and conflicts (Russia-Ukraine war, Middle East, Venezuela), and their impact on global economies, markets, financial condition, liquidity, and credit ratings.
• Deviations from market and economic assumptions used for ECL measurements, including impacts from inflationary pressures, commodity price changes, and commercial real estate sectors in mainland China and Hong Kong.
• Potential changes in HSBC's dividend policy.
• Changes and volatility in foreign exchange rates and interest rate levels, including fluctuations in HIBOR and accounting impacts from hyperinflationary economies.
• Volatility in equity markets and risk of disruptive correction from high company valuations, particularly in AI and technology sectors.
• Lack of liquidity in wholesale funding or capital markets, affecting ability to meet obligations or fund new loans/investments.
• Illiquidity and downward price pressure in national real estate markets.
• Adverse changes in central bank policies regarding liquidity support.
• Heightened market concerns over sovereign creditworthiness in over-indebted countries.
• Adverse changes in the funding status of public or private defined benefit pensions.
• Societal shifts in customer financing and investment needs, including consumer perception of credit availability.
• Exposure to counterparty risk, including third parties using HSBC as a conduit for illegal activities.
• Price competition in served market segments, including increased competition from non-bank financial services companies.
• Changes in government policy and regulation, monetary, interest rate, and other policies of central banks and regulatory authorities.
• Continued volatility in trade and tariff policies, changes in tariff rates, and sector-specific levies disrupting supply chains and global trade.
• Initiatives to change the size, scope, and interconnectedness of financial institutions due to stricter regulation.
• Revised capital and liquidity benchmarks, potentially lowering returns and deleveraging bank balance sheets.
• Changes to tax laws and rates, including levies designed to change business mix and risk appetite.
• Expropriation, nationalization, confiscation of assets, and changes in foreign ownership legislation.
• The UK's trading relationship with the EU, including potential divergence of UK and EU law on financial services regulation.
• Changes in government approach and regulatory treatment for ESG disclosures and reporting, and lack of standardized ESG regulatory approach.
• Costs, effects, and outcomes of regulatory reviews, actions, or litigation, including additional compliance requirements.
• Failure to adequately identify and manage risks (e.g., loan losses, delinquency) through account management, hedging, and other techniques.
• Inability to achieve financial, investment, capital, and ESG ambitions/targets/commitments (e.g., thermal coal phase-out, financed emissions reduction, net zero ambition), leading to reputational risks.
• Evolving regulatory requirements and new technologies (e.g., AI) affecting risk management, including model risk.
• Model limitations or failure, including impacts of high inflation and interest rates on financial models, potentially requiring additional capital or leading to losses.
• Changes to judgments, estimates, and assumptions underlying financial statements.
• Changes in ability to meet regulatory stress test requirements.
• Reduction in credit ratings, increasing funding costs or decreasing availability, affecting liquidity and net interest margin.
• Changes to reliability and security of data management, data privacy, information, and technology infrastructure, including cyber-attacks, leading to financial loss, business disruption, or data loss.
• Accuracy and effective use of data, including internal management information not independently verified.
• Changes in insurance customer behavior and claim rates.
• Dependence on loan payments and dividends from subsidiaries to meet obligations.
• Changes in reporting frameworks and accounting standards, materially impacting financial statements.
• Ability to successfully execute planned strategic acquisitions and disposals, and integrate acquired businesses.
• Ability to successfully execute and implement announced strategic reorganization.
• Ability to manage third-party, fraud, financial crime, and reputational risks.
• Employee misconduct, leading to regulatory sanctions, reputational, or financial harm.
• Changes in skill requirements, ways of working, and talent shortages, affecting recruitment and retention of skilled workforce.
• Ability to develop sustainable finance and ESG-related products consistent with evolving regulatory expectations, and capacity to measure environmental/social impacts from financing activity (data limitations, methodology changes), increasing greenwashing risk.
• Risks from inaccurate, unclear, misleading, or unsubstantiated claims regarding sustainability to stakeholders.
• Risks arising from political instability, civil unrest, and military conflict, leading to disruption of operations, physical risk to staff, or damage to assets.
• Geopolitical tensions and potential ambiguities in compliance obligations, creating legal, regulatory, reputational, and political risks.
• Competition from new entrants and evolving digital capabilities requiring increased investment.
• Inadequate data management (storage, deletion, quality, privacy, architecture) leading to negative impacts on customer service, business processes, or reporting errors.
• Third parties using HSBC as a conduit for illegal activities without knowledge, damaging reputation or leading to fines/sanctions.
• Insider threat from employees with access to bank data, systems, or finances using that access to cause harm.

Future Outlook

HSBC is targeting a Return on Average Tangible Equity (RoTE) of 17% or better for 2026, 2027, and 2028, excluding notable items. The company expects year-on-year revenue growth from 2026 to 2028, rising to 5% growth in 2028 compared with 2027, on a constant currency basis excluding notable items. A dividend payout ratio target of 50% is maintained for 2026-2028. Banking Net Interest Income (NII) is expected to be at least $45 billion in 2026, with Expected Credit Losses (ECL) charges around 40 basis points of average gross loans. Target basis operating expenses are projected to grow by approximately 1% in 2026. The CET1 capital ratio will be managed within the 14-14.5% target range, with share buy-backs paused until the ratio is restored after the Hang Seng Bank privatization impact. The global economy is expected to expand in 2026, with continued global trade growth driven by AI capital expenditure and new trade corridors. Inflation is anticipated to drift downward, though unevenly across markets. China's growth is expected to be anchored by stronger policy pushes and structural reforms, benefiting Hong Kong as a 'super-connector'.

Management Comments

• Brendan Nelson, Group Chairman, stated: 'We delivered strong performance and material returns for our shareholders in 2025. By leveraging our unique global network and leading capabilities, we helped our customers see past the sustained uncertainty in the international environment and find the opportunities that are driving the global economy forward.'
• Georges Elhedery, Group CEO, commented: '2025 marked a year of decisive action and swift execution. We are performing, transforming and investing for growth as demand for globally-connected financial services increases, especially in the worlds fastest-growing regions. We have aligned our structure with our strategy and strengthened our four complementary businesses. We are becoming a simple, more agile, focused bank built for a fast-changing world.'

Industry Context

StockSavvy.ai notes that HSBC's performance in 2025 reflects a banking sector navigating complex global dynamics. The emphasis on AI capital expenditure and trade growth as key drivers of the global economy aligns with broader industry trends where digital transformation and international connectivity are paramount. The continued geopolitical tensions, particularly between the US and China, and conflicts in the Middle East, highlight the challenging operating environment for multinational banks. HSBC's strategic focus on Asia and the Middle East, coupled with its strong transaction banking and wealth management capabilities, positions it to capitalize on evolving trade and capital flows in these high-growth regions. The industry-wide challenges in commercial real estate, especially in mainland China and Hong Kong, remain a significant concern, impacting ECL across the sector. The increasing regulatory scrutiny on ESG, data privacy, and cybersecurity also reflects a tightening compliance landscape for financial institutions globally.

Comparison to Industry Standards

• HSBC was voted Euromoney's World's Best Trade Finance Bank for the ninth consecutive year, indicating strong performance relative to global peers in this segment.
• Euromoney also recognized HSBC as the number one payments bank in products, services, and technology, based on a survey of 30,000 customers.
• HSBC is positioned as a leading wealth manager in Asia and the Middle East, with wealth balances across all businesses reaching $2.1 trillion.
• The company was ranked 1st globally for the fourth consecutive year in the CCLA Corporate Mental Health Benchmark Global 100+, significantly outperforming the financial services industry average of 34% with a score of 83%.
• The employee engagement index of 78% is four percentage points above the global financial services benchmark, demonstrating strong internal culture despite organizational changes.
• The UK Social Mobility Index ranking improved to 18th in 2025, up from 37th in 2024 and 67th in 2023, indicating strong progress in social mobility compared to other UK companies.
• The Hong Kong RBW average complaints per 1,000 customers per month decreased from 0.71 to 0.68, suggesting improved customer service compared to prior periods.

Management Changes

Corporate Governance

Legal Proceedings

• Bernard L. Madoff Investment Securities LLC: HSBC Securities Services Luxembourg (HSSL) is defending a claim by Herald Fund SPC for restitution of securities and $521 million in cash (plus interest) or $5.6 billion in damages. HSSL recognized a $1.1 billion provision following a Luxembourg Court of Cassation decision.
• US Anti-Terrorism Act litigation: Multiple lawsuits filed in US federal courts against various HSBC companies alleging aiding and abetting unlawful conduct of sanctioned parties or providing banking services to terrorism financing connections. Six actions remain pending, seeking unspecified damages.
• US dollar Libor litigation: Two individual actions alleging HSBC defendants violated US federal and state laws, including antitrust laws, related to US dollar Libor setting. Actions were dismissed in September 2025 but are pending appeal.
• Foreign exchange-related investigations and litigation: Ongoing investigation by Brazil's Administrative Council of Economic Defense, lawsuits in Brazil, and a complaint by South Africa's Competition Commission. HSBC Bank plc and HSBC Holdings were joined to a UK Competition Appeals Tribunal claim seeking approximately $3 billion in damages. HSBC Bank plc reached a settlement with plaintiffs in Israel (impact not significant, fully provisioned).
• Precious metals fix-related litigation: Class actions in US and Canada alleging manipulation of silver, gold, and related derivatives. US action dismissed but pending appeal. HSBC defendants reached a settlement in Canada (impact not significant, fully provisioned).
• Tax-related investigations: French National Financial Prosecutor investigated HSBC Continental Europe and HSBC Bank plc for alleged tax fraud. HSBC Bank plc reached a $0.3 billion settlement in January 2026, closing the matter. German public prosecutor investigations into dividend withholding tax treatment are ongoing.
• Korean short selling indictment: The Hongkong and Shanghai Banking Corporation Limited (HBAP) was indicted for breaching short selling rules. Korean appellate court acquitted HBAP, but the Prosecutors Office appealed to the Supreme Court.
• Investigations involving HSBC Private Bank (Suisse) SA: Swiss and French authorities are conducting criminal investigations into alleged money laundering offences in two historical banking relationships.
• First Citizens litigation: Lawsuit against various HSBC companies and former Silicon Valley Bank (SVB) employees seeking $1 billion in damages for alleged conspiracy to solicit employees and taking confidential information. Amended complaint filed in January 2026, motion to dismiss pending.
• US mortgage securitisation litigation: Lawsuits against HSBC Bank USA as trustee of mortgage securitisation trusts seeking unspecified damages for losses in collateral value. Most settled or dismissed; one action pending in New York state court. Plaintiff appealed dismissal of a mortgage loan repurchase action.

Related Party Transactions

• The Group provides banking and financial services to associates and joint ventures, including loans, overdrafts, interest and non-interest bearing deposits, and current accounts.
• At December 31, 2025, unsubordinated amounts due from joint ventures were $229 million (highest $253 million), and from associates were $4.76 billion (highest $9.945 billion).
• Amounts due to associates were $1.344 billion (highest $2.99 billion), and to joint ventures were $153 million (highest $212 million).
• Fair value of derivative assets with associates was $673 million (highest $902 million), and liabilities were $1.48 billion (highest $2.66 billion).
• Guarantees and commitments with associates were $777 million (highest $992 million).
• HSBC Holdings' investments in subsidiaries were $157.7 billion at December 31, 2025.
• HSBC Holdings' loans and advances to HSBC undertakings were $40.5 billion, and financial assets with HSBC undertakings designated at fair value were $67.217 billion.
• Amounts owed to HSBC undertakings by HSBC Holdings were $89 million, and financial liabilities designated at fair value were $52.907 billion.
• HSBC Holdings' guarantees in favor of other Group entities were $6.983 billion.
• At December 31, 2025, $3.8 billion of HSBC post-employment benefit plan assets were managed by HSBC companies, earning $15 million in management fees.
• HSBC's post-employment benefit plans had placed $0.4 billion in deposits with its banking subsidiaries, earning $5 million in interest.
• The combined HSBC Bank (UK) Pension Scheme entered into swap transactions with HSBC with a gross notional value of $6.6 billion, having a positive fair value to the scheme of $0.4 billion.

Stakeholder Impact

• Shareholders: Expected to benefit from increased dividends ($0.75 per share for 2025) and significant share buy-backs ($6 billion), alongside a raised RoTE target for future years. However, reported profit decline due to notable items and geopolitical risks could impact sentiment.
• Employees: Organizational simplification and restructuring efforts may lead to job impacts (severance costs of $1.0 billion incurred). Focus on building a high-performance culture, inclusion, well-being, and skills development (AI Academy, Wealth Academy) aims to support employee growth and retention. Compliance with living wage benchmarks globally provides financial security.
• Customers: Enhanced digital capabilities, new Wealth Centres, and improved customer satisfaction scores (e.g., record high NPS in Hong Kong RBW) aim to deliver better service. However, increased customer complaints in some IWPB markets (e.g., Mexico, Australia, India) indicate areas for improvement. Geopolitical tensions and trade policies could affect customer activity and creditworthiness.
• Regulators: Ongoing regulatory scrutiny on financial crime, operational resilience, data privacy, and ESG disclosures requires continuous investment in compliance frameworks. Delays in Basel 3.1 implementation and evolving ESG reporting standards present challenges.
• Communities: Commitment to net zero ambition and sustainable finance aims to support the global transition. Philanthropic partnerships and community engagement initiatives focus on financial literacy, entrepreneurship, and social empowerment.

Next Steps

• Roll out the 'How We Lead' leadership framework to broader people leaders globally in 2026.
• Expand enterprise-wide adoption of AI tools and embed AI deeper into core processes through 2026.
• Launch six more markets for the Digital Merchant Services solution in 2026.
• Complete the sale of the Sri Lanka retail banking business in the first half of 2026.
• Complete the sale of HSBC Bank Malta plc in the first half of 2027.
• Complete the phased transfer of the German custody business starting in the first quarter of 2026, with full completion expected in the second half of 2026.
• Complete the sale of HSBC Bank (Uruguay) S.A. in the second half of 2026.
• Complete the sale of the fund administration business, Internationale Kapitalanlagegesellschaft mbH, in the second half of 2026.
• Continue to review and enhance the approach to disclosures, including for upcoming regulatory requirements like ISSB standards.
• Increase focus on how physical risk events could impact the non-commercial real estate portfolio in 2026.
• Continue to explore impacts on the portfolio from a nature risk perspective, with modelling capabilities expected to evolve over time.
• Review the pay structure for senior executives in 2026 following changes to PRA remuneration rules.

Key Dates

Recommendation

HSBC demonstrates strong underlying financial performance, particularly in its core businesses and strategic growth areas like Wealth and Wholesale Transaction Banking, reflected in the raised RoTE target and increased dividends/buybacks. The successful privatization of Hang Seng Bank and progress in organizational simplification are positive strategic moves. However, the reported decline in profit before tax due to significant notable items, including impairment losses and legal provisions, introduces a degree of caution. Ongoing macroeconomic and geopolitical uncertainties, coupled with evolving regulatory landscapes and inherent risks in complex financial models, suggest a 'hold' recommendation. While the long-term outlook is promising with clear strategic direction and investment in future technologies like AI, the immediate impact of these challenges warrants a balanced and watchful approach for investors.

Keywords

Banking, Financial Services, SEC Filing, Annual Report, HSBC, Profit, Revenue, RoTE, Capital Ratio, Dividends, Share Buybacks, ESG, Net Zero, Risk Management, Geopolitical Risk, Economic Outlook, Digital Transformation, AI, Wealth Management, Commercial Real Estate, Hong Kong, UK, Corporate and Institutional Banking, International Wealth and Premier Banking, Hang Seng Bank, Disposals, Restructuring, Credit Risk, Liquidity, Regulatory Compliance, Financial Crime