HSBC Holdings has today reported a 26% slide in first-half pretax profit, missing analyst estimates, as impairments from its investment in China's Bank of Communications and exposure to Hong Kong real estate weighed.
Europe's largest bank posted a profit of $15.8 billion for the first six months of this year, which compared with the $16.5 billion average of broker estimates compiled by HSBC.
The sharper-than-expected decline in HSBC's earnings showed the challenge ahead for CEO Georges Elhedery, as the bank racked up losses in China where it has increasingly pinned its plans for growth in recent years after shrinking in Western markets.
The lender took a further $2.1 billion hit from its stake in Bank of Communications, following a $3 billion impairment it took in February 2024 amid mounting bad loans in China.
The new writedown included a $1.1 billion loss as a result of the Chinese state-owned bank's fundraising earlier this year by private placement of shares which diluted HSBC's ownership.
Expected credit losses grew by $900m compared to the first half of last year to $1.9 billion, the bank said, partly due to its exposure to Hong Kong's troubled commercial real estate sector.
China's property market, once a key growth driver for the world's second-largest economy, has been in a multi-year tailspin despite repeated government attempts to revive weak consumer demand, which left losses on domestic lenders' loan books.
A sluggish property market in Hong Kong could continue to weigh on asset quality of banks operating in Hong Kong, according to Citi's analysts. Some small property developers are already in financial difficulties and continued declines in property prices may increase the need for provisions, they added.
HSBC also said the impact of US President Donald Trump's trade tariffs could cause it to miss its profitability target of a mid-teens return on tangible equity in future years, in a scenario where the economy deteriorates and central banks slash policy rates.
The lender disclosed it expects to recognise a loss of around $1.4 billion in the fourth quarter this year, when it completes the sale of a mortgage portfolio in France to insurer Rothesay and French lender CCF.
The corporate and institutional banking business, HSBC's biggest revenue earner after a sweeping reorganisation since last year, delivered $6.4 billion in pretax profit in the first half, up 4% from same time last year, and was the only business segment out of four main divisions that saw profit increase.
The lender, with a market value of $225 billion, announced a new share buyback worth up to $3 billion, on top of a $3 billion buyback programme announced earlier this year.
The bank said it would pay an interim dividend of 10 cents a share - its second dividend payment in 2025 following 10 cents announced at the end of the previous quarter.
HSBC is still in search of a replacement for Chairman Mark Tucker, who announced his plans to step down in May after eight years at the bank. Tucker will assume the role of chairman at Hong Kong-based insurer AIA Group on October 1.
