ZACKSยท2025-07-30 13:35Core Viewpoint - HSBC Holdings reported a significant decline in pre-tax profit for Q2 2025, primarily due to increased credit losses and rising expenses, leading to a disappointing performance for investors [1][8]. Financial Performance - The pre-tax profit for Q2 2025 was $6.33 billion, a 29% decrease from the same quarter last year [1][8]. - Total revenues amounted to $16.47 billion, showing a slight year-over-year decline, mainly attributed to lower other operating income [2]. - Operating expenses rose by 10% to $8.92 billion [2]. - Expected credit losses (ECL) surged to $1.07 billion, up from $346 million in the prior-year quarter, largely due to issues in the Hong Kong real estate sector [2][8]. Business Segment Performance - The Hong Kong Business segment reported a pre-tax profit of $2.13 billion, down 13% year-over-year due to increased ECL charges [4]. - The UK Business segment's pre-tax profit was $1.73 billion, a 2% decline from the previous year, impacted by higher ECL charges and rising expenses [4]. - Corporate and Institutional Banking saw a pre-tax profit of $2.84 billion, down 4% year-over-year due to higher ECL charges and operating expenses [5]. - International Wealth and Premier Banking reported a pre-tax profit of $904 million, a 16% decline year-over-year, primarily due to increased operating expenses [5]. - The Corporate Centre experienced a pre-tax loss of $1.28 billion, contrasting with a pre-tax income of $658 million in the same quarter last year [5]. Capital Distribution - HSBC returned $9.5 billion to shareholders through dividends and share buybacks in the first half of 2025 [6][8]. - A second interim dividend of 10 cents per share was announced, along with a new share buyback authorization of up to $3 billion, expected to be completed before the Q3 results announcement [6]. Management Outlook - For 2025, HSBC anticipates banking net interest income (NII) of $42 billion and expects double-digit percentage growth in fees and other income in the wealth business over the medium term [9]. - Operating expenses are projected to rise by 3% in 2025, with an expected $1.8 billion in expenses related to business overhaul by the end of 2026, aiming for annualized cost savings of $1.5 billion by the end of 2027 [9]. - ECL charges are now expected to be 40 basis points of average gross loans, reflecting challenging market conditions in the Hong Kong real estate sector [10]. - Loan demand is anticipated to be subdued, with mid-single-digit CAGR growth expected in the medium term [10]. - The company aims to maintain its CET1 ratio within a target range of 14-14.5% [11].