HSBC, Europe's largest lender, has reported a 7% decline in pre-tax profit to $29.9 billion for the past year, yet its chief executive, Georges Elhedery, has indicated that a major overhaul of the bank is drawing to a close. Elhedery, who assumed the role in 2024, stated that HSBC is evolving into a simpler, more agile, and focused institution designed to thrive in a rapidly changing global landscape.
Profit Decline Amidst Strategic Charges
The drop in profits was primarily driven by $4.9 billion in one-off charges, including a $2.1 billion write-off related to holdings in China's Bank of Communications, impacted by the prolonged downturn in China's property sector. This led to a significant 66% plunge in pre-tax profit for HSBC's mainland China business, which fell to $1.1 billion. Additionally, the bank recorded legal provisions of $1.4 billion and restructuring costs totaling $1 billion.
Despite these setbacks, HSBC's performance exceeded City analysts' forecasts by approximately $1 billion, following an unusually strong year in 2024. The bank's Hong Kong-listed shares responded positively, rising 2.5% after the announcement.
Enhanced Profitability Targets and Strategic Moves
HSBC has raised its target for return on tangible equity, a key profitability metric, to 17% or better through 2028, up from a previous mid-teens target set for the period through 2027. Last year, the bank achieved a return of 13.3%. This ambitious goal underscores its commitment to enhancing financial performance amidst ongoing transformations.
Under Elhedery's leadership, HSBC has undergone significant restructuring, including reorganizing operating divisions along east-west lines, divesting smaller investment banking units in the US and Europe, and reducing the ranks of senior managers. The bank initiated 11 exits from various global businesses last year, contributing to a 50% surge in its London-listed stock in 2025, with an additional 10% gain year-to-date, bringing its market value to around $300 billion.
Synergies and Dividend Adjustments
In a notable strategic move, HSBC took subsidiary Hang Seng Bank private in a $13.7 billion deal last year. The combined banking operations aim to achieve $900 million in pre-tax revenue and cost synergies by the end of 2028, though this will be accompanied by approximately $600 million in restructuring costs.
The bank declared a final dividend of 45 cents per share, supplementing an earlier 30-cent payout. However, this total of 75 cents for the year falls below the 87 cents distributed in 2024. Elhedery's total compensation for 2025 increased by 18% to £6.6 million, reflecting his role in steering the bank through its transformation.
Analyst Perspectives and Leadership Changes
Analysts at Jefferies noted that while investors are likely to welcome the strong results, they may question HSBC's forecast of just a 1% rise in costs for 2026, given the competitive banking environment and the need for investments in artificial intelligence technology. In December, HSBC appointed former KPMG partner Brendan Nelson as its chair, concluding a prolonged search that left the top role vacant for months.
Overall, HSBC's journey toward becoming a more streamlined and efficient bank continues, with Elhedery emphasizing resilience and adaptability in the face of economic challenges and market shifts.
