HSBC shares tumble nearly 7% on Q3 revenue miss and flat wealth, despite 32% profit gain

The sharp decline indicates that much of HSBC's recent performance had been priced in following a strong period. The absence of a guidance upgrade, combined with a revenue shortfall and flat wealth expansion, was sufficient to spark profit-taking. For other Hong Kong and Asian lenders, the implication is margin strain: more expensive time deposits are squeezing interest revenue at a time when the Fed's rate hikes continue to keep funding costs elevated. Oil prices play an indirect role, because inflation and rate uncertainty stemming from the Iran conflict are depressing bank valuations across the board, and HSBC has already made provisions for the Middle East situation. The capital relief from Basel 3.1 starting in January 2027 provides HSBC with headroom to increase buyback capacity, potentially capping further losses once the initial disappointment passes.

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Earlier coverage:

• Goldman: Markets offload US banks on higher rates, but income guidance rises into 2027

--- HSBC posted a substantial profit increase and another $1bn buyback, but a revenue shortfall, stagnant wealth revenue and unchanged targets sufficed to drive its stock down sharply.

Key points:

• HSBC stock dropped nearly 7% on Tuesday following Q3 revenue of about $18.6 billion, which fell short of the approximately $19.1 billion consensus, while adjusted EPS of $2.10 missed the $2.22 estimate.
• Pretax profit climbed 32% to roughly $9.6 billion, supported by the lack of legal provisions booked a year earlier. Stripping out such items, profit increased about 10% to around $10 billion.
• Wealth revenue was unchanged at about $2.7 billion following robust expansion in the first half. Net interest income increased 6% but came in slightly under forecasts.
• Competition for deposits is strengthening in Hong Kong and the UK, with time deposits accounting for 38% of HSBC's Hong Kong deposit mix.
• The bank reaffirmed, not upgraded, its guidance: banking NII of at least $46 billion in 2026 and a RoTE of at least 17% from 2026 to 2028.
• HSBC unveiled a fresh buyback of as much as $1 billion. The CET1 ratio slipped to 13.9%, with Basel 3.1 anticipated to contribute 40 to 50 basis points from January 2027.

HSBC's shares fell nearly 7% on Tuesday after Q3 revenue came in below estimates and wealth income stopped growing, overshadowing a 32% rise in pretax profit to about $9.6 billion and a new buyback of up to $1 billion.

For the July-September quarter, revenue reached about $18.6 billion, below the approximately $19.1 billion analysts had forecast, and adjusted EPS of $2.10 fell short of the $2.22 consensus. Pretax profit roughly matched expectations, although the reported increase was boosted by the omission of legal provisions recorded a year earlier. Excluding one-off items, profit increased about 10% to about $10 billion.

Wealth was the weakest area, a key growth driver for the bank. Wealth revenue stagnated at about $2.7 billion following year-over-year expansion of 15% and 23% in the prior two quarters, though net new money inflows in Asia stayed robust at roughly $38 billion for the period. Net interest income increased 6% to about $9.3 billion, a shade under forecasts, while the net interest margin — the difference between lending income and deposit costs — held steady at 1.57%.

Analysts pointed to intensifying competition for deposits in Hong Kong and the UK as a stress factor. Fixed-term deposits, offering savers higher returns, climbed to 38% of HSBC's Hong Kong deposit composition, a change that typically squeezes margins. Executives noted that deposit competition in Hong Kong is the more significant influence on interest revenue.

Investors were also anticipating an upward revision. HSBC maintained, instead of increasing, its outlook for banking NII of at least $46 billion this year and a RoTE of at least 17% from 2026 to 2028, along with revenue growth of 5% by 2028. CFO Pam Kaur conceded that the market occasionally anticipates guidance or targets to be raised.

Credit conditions remained stable. Expected credit losses decreased 17% to about $800 million, aided by reduced provisions for Hong Kong commercial property, while the bank's provisions over nine months include reserves for uncertainty related to the Middle East conflict. The CET1 ratio declined to 13.9%. HSBC anticipates that incoming Basel 3.1 regulations will contribute 40 to 50 basis points to that figure from January 2027, compared to a targeted range of 14% to 14.5%, and reiterated that buybacks are its favored method for returning excess capital.

The market response puts pressure on HSBC to demonstrate that wealth momentum can revive and that deposit costs will not further erode margins when it releases annual results.