HSBC's Q3 pre-tax profit plummets 42% on impairments and France unit sale

HSBC, Europe's largest lender, said profit before tax in the third quarter plunged by about 42 per cent due to rising credit losses and impairments, even as its net interest income soared on rising borrowing costs globally.

Pre-tax income for the three months to the end of September fell to about $3.15 billion, from $5.4bn in the same period a year earlier while net interest income jumped 30 per cent to $8.6bn, the lender said on Tuesday.

The bank recorded a $2.4bn impairment after the reclassification of its retail banking operations in France ahead of the sale of that business, as well as a net charge for expected credit losses and other credit impairment charges, compared with a net release in the same period in 2021.

Reported revenue for the July-September period fell 3 per cent to $11.6bn, primarily reflecting an impairment on the planned disposal of its retail banking operations in France, as well as an adverse foreign currency translation impact of $1bn, it said.

However, net interest income increased in all the lender's businesses globally due to interest rate rises, with adjusted revenue rising 28 per cent to $14.3bn.

“We maintained our strong momentum in the third quarter … our strategy produced good organic growth in all three global businesses, and net interest income increased on the back of rising interest rates,” said group chief executive Noel Quinn.

“We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12 per cent from 2023 onwards and, as a result, higher distributions to our shareholders.”

Reported operating expenses were unchanged from the third quarter of 2021, while adjusted operating expenses rose 5 per cent due to a higher performance-related pay accrual and increased investment spending, mainly in technology.

Customer lending balances fell $61bn in the quarter on a reported basis. On an adjusted basis, lending balances fell $18bn, reflecting a $23bn reclassification of loans relating to the planned disposal of assets held for sale in France, partly mitigated by growth in mortgage balances of $2bn in the UK and $1bn in Hong Kong.

The bank said its outlook on revenue remained “positive”. It upgraded its net interest income guidance for 2022 to $32bn, based on the current market consensus for global central bank rates.

Central banks globally have been raising interest rates to tame surging inflation. The US Federal Reserve is expected to raise rates by a fourth 75 basis point move next month.

For 2023, HSBC expects net interest income of at least $36bn, a reduction from the guidance of at least $37bn provided in its interim results, which reflects the impact of the pound's depreciation against the US dollar and a higher cost of funding.

“We continue to monitor the expected path of interest rates. This is expected to be supported by low single-digit percentage lending growth,” the bank said.

It said macroeconomic headwinds, including higher inflation and a weaker outlook, continued to weigh on the global economy and the credit indicators in its wholesale and retail businesses remained “relatively benign” compared with historical levels.