"Major Banks" Citigroup: HSBC's underlying performance last quarter was strong, raising guidance for this year's net interest income and tangible equity return

Citi published a report stating that HSBC HOLDINGS (00005.HK) announced its third-quarter results at noon, with a fixed exchange rate pre-tax profit of USD 9.1 billion, excluding items to be noted, which is 9% higher than market consensus; revenue exceeded expectations by 5%, costs were slightly worse by 1%, and credit losses were better than expected by 2%. The revenue growth mainly came from net interest income from banking operations, which was 4% higher than expected, and non-net interest income, which was 6% higher than expected. HSBC also raised its guidance for net interest income and return on tangible equity for this year.

The bank indicated that HSBC's reported benchmark pre-tax profit was nearly USD 7.3 billion, which was 5% lower than market expectations, but this difference was entirely due to a USD 1.4 billion litigation provision, of which USD 1.1 billion was disclosed yesterday (related to the Madoff fraud case). As of the end of September, HSBC's Common Equity Tier 1 Capital Ratio (CET1R) decreased by 10 basis points quarter-on-quarter to 14.5%, in line with market expectations. The quarterly dividend per share remained unchanged, and the repurchase plan was suspended as previously announced to raise funds for acquiring minority interests in Hang Seng Bank.

Citi noted that HSBC's guidance for the fiscal year 2025 has been raised, now expecting net interest income to reach USD 43 billion or more (previously about USD 42 billion), with a return on tangible equity (RoTE) expected to reach 15% or more. Overall, the bank believes this represents a strong underlying performance, which should provide some confidence support after the recent decline in share price due to news related to Hang Seng (00011.HK) and litigation announcements. The bank reiterated its "Buy" rating on HSBC listed in London (HSBA.L) with a target price of £11.6 (approximately HKD 120.29), considering HSBC as one of its preferred stocks