HSBC Reports Strong Q1 But Faces Trade War Challenges

HSBC's stock is up 9% this year. Despite a 15% revenue decline in Q1, profits exceeded expectations with strong contributions from Wealth and Forex segments. A rising fee-based position contrasts trade war risks, which could hurt loan demand and quality.

Date: 15-05-2025

AI Rating: 6

**HSBC's Earnings and Profitability** HSBC's recent report reflects mixed performance in Q1, with a notable decline in revenues by 15% year-over-year, totaling $17.65 billion, attributed to disposals in Canada and Argentina. However, the bank's profit before tax stood at $9.48 billion, a decrease of 25% year-over-year yet surpassing analyst expectations. Furthermore, the sequential growth of nearly 317% is notable and highlights a recovery trend in specific segments. The Wealth division showed strong growth with revenues up 21% year-over-year, demonstrating HSBC's strategy to pivot towards fee-based services attracting affluent clients, particularly in Asia. **Impact of Trade Wars** Despite these positive trends, the banking giant has indicated potential headwinds from the ongoing U.S.-China trade tensions. HSBC's exposure to international trade suggests that any deterioration in loan demand and credit quality could negatively impact the bank's financial health, with projections of a low single-digit impact on revenues due to economic slowdowns and expected credit losses of around $500 million. **Stock Valuation and Return on Equity** The stock remains at a fair valuation, trading just over 1x tangible book value, which signifies a potential opportunity for investors. HSBC's commitment to enhancing efficiency, targeting annualized savings of $1.5 billion by 2026, indicates focused management on cost reductions. The bank's goal of achieving mid-teens return on average tangible equity between 2025 and 2027 positions it positively against industry competitors. However, reduced net interest income could pose challenges ahead, especially with net interest income accounting for a significant proportion of total revenues. Overall, HSBC maintains a position of optimism through strategic shifts and capital returns with a recent $3 billion share repurchase program, which could support stock prices in the near term. Investors should remain cautious of potential adverse effects stemming from trade policy dynamics, impacting overall investment sentiments.

Stocks: HSBC JPM