HSBC Q2 Pre-Tax Earnings Improve Y/Y on Higher Revenues, Lower Costs

HSBC’s Revenues Improve, Expenses Fall

Total revenues were $19.12 billion, up 16.1% year over year. The rise was driven by higher net interest income, net fee income and other operating income.

Total operating expenses declined 2.4% year over year to $8.71 billion. The decline reflected lower restructuring costs together with the resultant cost reduction benefits from the organizational simplification, and the phasing of performance-related pay accrual relative to second-quarter 2025. These reductions were partly offset by higher planned spend and investment in technology, the impact of inflation and an adverse impact from foreign currency translation differences of $0.1 billion.

In the quarter under review, ECL was $1.05 billion, down 1.2% from the prior-year quarter. The charge in the reported quarter primarily comprised stage 3 charges, including $0.2 billion related to the Hong Kong CRE sector.

The common equity tier 1 (CET1) ratio, as of June 30, 2026, was 14.1%, down from 14.9% as of Dec. 31, 2025. The leverage ratio was 4.9%, down from 5.3% as of Dec. 31, 2025.

HSBC’s Quarterly Performance by Business Lines

The Hong Kong Business: The segment reported $2.55 billion in pre-tax profit, up 24% from the year-ago period. The rise was driven by higher revenues and lower ECL.

The UK Business: The segment reported a pre-tax profit of $1.69 billion, up 2.8% from the year-ago quarter. A rise in revenues and lower expenses resulted in the increase.

Corporate and Institutional Banking: Pre-tax profit was $3.91 billion, which increased 30.2% year over year. The rise was driven by higher revenues and lower expenses.

International Wealth and Premier Banking: Pre-tax profit was $1.39 billion, which increased 53.2% year over year. The rise was driven by higher revenues and lower ECL.

Corporate Centre: The segment reported a pre-tax profit of $612 million against a pre-tax loss of $1.28 billion in the year-ago quarter.

HSBC’s Capital Distribution Update

The company’s board of directors approved a second interim dividend of 10 cents per share. Also, HSBC intends to initiate a share buyback of up to $1 billion, which is expected to be completed by the third-quarter 2026 result announcement.

HSBC Management’s Outlook

For 2026, management expects banking net interest income (NII) of at least $46 billion.

ECL charges as a percentage of average gross loans are expected to be 45bps in 2026 (including held-for-sale loan balances). Over the medium term, the company plans to retain 30-40bps.

The company projects growth in target basis operating expenses of 1% for 2026 from that reported in 2025.

Management expects growth in revenues from 2026 to 2028, rising to 5% growth in 2028 from 2027.

HSBC expects a return on average tangible equity of 17% or better for 2026, 2027 and 2028, excluding notable items.

The company intends to manage the CET1 ratio within its medium-term target of 14-14.5%.

The dividend payout ratio on a target basis is expected to be 50% in 2026, 2027 and 2028, excluding material notable items and related impacts.

Our View on HSBC

HSBC’s strong capital position, a global network and business-simplification initiatives are expected to support its financials. As part of its focus on optimizing returns, the company is divesting operations in underperforming regions and has exited retail banking across multiple markets. These moves position it for improved operating efficiency.

Currently, HSBC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of HSBC’s Peers

Barclays BCS reported second-quarter 2026 net income attributable to ordinary equity holders of £2.26 billion ($3.03 billion), up 36% from the prior-year quarter.

An increase in revenues and a strong balance sheet supported BCS’ results. However, the company recorded higher operating expenses in the quarter, which, along with an increase in credit impairment charges, hurt the results to some extent.

ICICI Bank Ltd.’s IBN profit after tax for first-quarter fiscal 2027 (ended June 30, 2026) was INR148.05 billion ($1.56 billion), up 16% from the prior-year quarter.

IBN’s results were aided by growth in net interest income and non-interest income. A decline in provisions was a tailwind. However, higher operating expenses hurt the results to some extent.

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