Executive Summary / Key Takeaways

• HSBC is undergoing a profound strategic transformation, simplifying its structure and divesting non-core assets to sharpen its focus on high-growth areas, particularly in Asia and the Middle East.
• The bank demonstrates strong financial momentum, with H1 2025 revenue up 6% to $35.4 billion and profit before tax up 5% to $18.9 billion (excluding notable items), supported by robust performance in Wealth and Transaction Banking.
• Technological differentiation, including HSBC TradePay and Tokenised Deposit Services, alongside significant AI/GenAI investments, is enhancing operational efficiency and customer experience, forming a key competitive moat.
• Management reaffirms a mid-teens Return on Tangible Equity (ROTE) target for 2025-2027, underpinned by disciplined cost management, $1.5 billion in simplification savings, and strategic capital reallocation.
• Despite macroeconomic uncertainties and Hong Kong Commercial Real Estate (CRE) challenges, HSBC maintains a strong capital position and commits to consistent shareholder returns through a 50% dividend payout and share buybacks.

Setting the Scene: HSBC's Enduring Global Presence and Strategic Evolution

HSBC Holdings plc, founded in 1865 and headquartered in London, United Kingdom, stands as a diversified global financial services institution. Its core operations span Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets, serving a vast international clientele. The industry landscape is characterized by intense competition from global peers, regional specialists, and disruptive fintechs, alongside evolving regulatory demands and geopolitical shifts.

HSBC has a long history of adapting to new economic realities. In recent years, this has translated into a multi-year strategy of simplification and strategic repositioning. The company has systematically divested non-core assets, including retail banking operations in France and the US, and its banking businesses in Canada and Greece. This trend continued into 2025 with further exits such as its Uruguay business, UK life insurance subsidiary, and German custody and fund administration businesses. These actions aim to streamline its presence in Western geographies, focusing primarily on corporate and institutional banking, and to concentrate resources on core strategic areas where it holds competitive advantages.

A pivotal organizational restructuring, effective January 1, 2025, transformed the group from three businesses across five regions to four distinct, empowered businesses: Hong Kong and the UK (home markets), Corporate & Institutional Banking (CIB), and International Wealth and Premier Banking (IWPB). This reorganization also reduced geographic governance from five regions to two and the Group Executive Committee from 18 to 12 members, fostering a simpler, more agile, and leaner banking operation. This simplification is projected to generate approximately $1.5 billion in annualized cost savings by the end of 2026, primarily through the deduplication of roles, with $0.4 billion expected in the 2025 P&L.

HSBC's competitive edge is built on its extensive global network, particularly across fast-growing trade and investment routes in Asia and the Middle East. The bank boasts a strong brand, deep local expertise, and a powerful deposit franchise, underpinning a highly liquid balance sheet. It has been consistently ranked as the world's number one trade bank for seven to eight consecutive years, a testament to its market leadership and specialized capabilities. This global connectivity and expertise allow HSBC to differentiate itself from more regionally focused competitors and capture complex cross-border financial flows.

Technological Edge: Driving Efficiency and Innovation

HSBC is actively leveraging technology to enhance its competitive position and operational efficiency. The bank has launched HSBC TradePay for import duties, a targeted financing solution for its U.S. customers that simplifies duty payments and optimizes working capital. A significant innovation is the HSBC Tokenised Deposit Services, now live in Hong Kong and Singapore, with planned launches in the UK and Luxembourg by September 2025, and in the US, UAE, and other markets in 2026. This next-generation programmable cross-border payment system moves money in real-time, 24/7, across its network, leveraging blockchain technology to deliver global instant cross-border payments. This offers a tangible benefit of significantly faster and more efficient international transactions compared to traditional methods.

Beyond specific products, HSBC is modernizing its operations through AI, GenAI, and Automation. Over 20,000 engineers are now 15% more efficient in coding due to new tools. GenAI is being deployed across five CIB markets to streamline credit analysis write-ups, and AI-supported mobile apps and strengthened contact center capabilities are improving customer service. These technological advancements are not merely incremental improvements; they are foundational to HSBC's strategy, contributing to its competitive moat by reducing operational costs, improving service delivery, and enabling new, high-value offerings. For investors, this translates into potential for higher operating leverage, improved customer acquisition and retention, and a stronger position in the evolving digital banking landscape.

Financial Performance: A Story of Resilience and Strategic Execution

HSBC delivered a strong first half of 2025, with revenue growing 6% to $35.4 billion and profit before tax increasing 5% to $18.9 billion, both excluding notable items. The annualized Return on Tangible Equity (ROTE) for this period stood at an impressive 18.2%, marking a 1.2% year-on-year improvement. For the second quarter of 2025 alone, revenue grew 5% year-on-year to $17.7 billion, driven primarily by fee and other income, with an annualized ROTE of 17.7%. These figures underscore the momentum the company has sustained. Looking back, the full year 2024 saw HSBC achieve a record profit before tax of $32.3 billion, or $34.1 billion excluding notable items, with a 14.6% ROTE (16% excluding notable items), aligning with its mid-teens target.

The company's profitability is robust, with a TTM Gross Profit Margin of 49.80%, Operating Profit Margin of 19.15%, and Net Profit Margin of 13.64%. EBITDA Margin stands at 20.76%. These margins reflect effective cost management and a focus on high-quality revenue streams. Annual operating cash flow for the TTM period was $65.31 billion, translating to $61.42 billion in free cash flow, demonstrating strong liquidity generation. The growth in earnings per share (EPS) by approximately 9% in 2024, despite a 2% earnings growth, highlights the positive impact of share buybacks on shareholder value.

Each of HSBC's four businesses is contributing to this strong performance, with each achieving a mid-teens ROTE or better.

• Hong Kong Home Market: This segment continues to be a growth engine, attracting an average of 100,000 new-to-bank customers every month in 2025, reflecting strong customer growth and solid deposit inflows. In Q2 2025, Hong Kong attracted an additional 300,000 new-to-bank customers, bringing the first-half total to 600,000. Deposits in Hong Kong grew by 9% over the last 12 months on a constant currency basis.
• UK Home Market: The UK business shows signs of recovery in lending, with its loan book growing by $6 billion (constant currency) in Q2 2025, including a $3.5 billion increase in commercial banking loans. The overall UK loan book expanded 4% year-on-year on a constant currency basis.
• Corporate and Institutional Banking (CIB): This segment delivered a 5% growth in wholesale transaction banking fee and other income in Q2 2025. Trade fees and other income grew by 4%, driven by HSBC's leading position in fast-growing intra-regional trade corridors and investments in the services trade sector. FX performance was particularly strong, up 7% due to elevated client activity and market volatility. Global Trade Solutions increased 4%, Securities Services was up 3%, and Global Payment Solutions saw a 1% increase.
• International Wealth and Premier Banking (IWPB): This is a standout performer, achieving its sixth consecutive quarter of double-digit fee growth in Q2 2025, with fee and other income growing 21% year-on-year. Across all Wealth businesses, fee and other income increased 22%. The segment attracted $22 billion in net new invested assets in Q2 2025 ($11 billion in Asia), contributing to a total of $75 billion over the last 12 months. Wealth invested assets reached $1.4 trillion, a 12% increase year-on-year.

Capital Strength and Shareholder Returns

HSBC maintains a robust capital position, with its Common Equity Tier 1 (CET1) capital ratio standing at 14.6% in Q2 2025. This is within the company's comfortable operating range of 14% to 14.5%, which management has stated is no longer subject to further reduction. This strong capital base provides significant financial flexibility and resilience.

The company is committed to returning capital to shareholders. For Q2 2025, HSBC announced a $0.10 dividend per share and a new share buyback of up to $3 billion, bringing total distributions for the first half of the year to $9.5 billion. The $3 billion buyback is expected to have an impact of approximately 0.4 percentage points on the CET1 ratio. Management prioritizes a 50% dividend payout ratio, followed by business growth, with share buybacks serving as the flexible residual means of capital distribution. Share buybacks are explicitly favored for their ability to drive growth in Earnings Per Share (EPS) and Dividends Per Share (DPS) by reducing the share count. Since Q1 2023, the company has reduced its share count by 13% through buybacks. Management affirms that the company is trading above tangible book value and does not consider this a ceiling for buybacks.

Outlook and Strategic Initiatives: Fueling Future Growth

HSBC reaffirms its full-year banking Net Interest Income (NII) guidance of "around $42 billion" for 2025. This expectation is based on current market rates and internal projections. Key assumptions include a gradual rise in the 1-month HIBOR back above 2% during Q3 2025, offsetting earlier headwinds. Further tailwinds are anticipated from the repricing of the structural hedge, with $55 billion to be reinvested in the second half of 2025 at an average yield of 2.8%, and an expected improvement of 2% in reinvestment rates. The structural hedge, now $578 billion, has significantly reduced revenue sensitivity to interest rate cuts. A weaker US dollar is also expected to provide a tailwind. The primary driver for NII remains the company's strong deposit franchise, which grew by $83 billion (5%) over the last 12 months.

Cost discipline remains a core commitment. HSBC is on track to achieve approximately 3% cost growth in 2025 compared to 2024 on a target basis. The organizational simplification initiative is expected to deliver approximately $1.5 billion in annualized savings by the end of 2026, primarily through deduplication of roles. An upwardly revised $0.4 billion of these savings is projected to impact the 2025 P&L, with the full $1.5 billion realized in 2027. These savings are expected to flow directly to the bottom line with no meaningful impact on revenue.

Costs released from the exit of non-strategic activities are being strategically redeployed into priority growth areas where HSBC holds a clear competitive advantage and expects accretive returns.

• Wealth: Significant investments are being made to expand wealth centers and capabilities in Hong Kong, which is poised to become the world's leading cross-border wealth hub. New state-of-the-art wealth centers have been opened, and the Premier Wealth brand has been relaunched in the UK, targeting mass affluent customers. Dedicated wealth centers have also been opened in Mainland China, Singapore, and Malaysia, with refreshed Premier banking propositions in the UAE, India, Malaysia, and the US.
• SME Banking: In the UK, an improved coverage model for SME banking is bringing relationship managers closer to customers, reflected in an improved 4-star Trustpilot ranking.
• Wholesale Transaction Banking: HSBC continues to enhance its transaction banking capabilities. The launch of HSBC TradePay for import duties in the US provides targeted financing solutions, and the expansion of HSBC Tokenised Deposit Services aims to deliver global instant cross-border payments. Payment tracking solutions have also been enhanced to provide a global view of payment status.

The bank's modernization efforts through AI, GenAI, and Automation are integral to its future outlook. The 15% efficiency gain for 20,000 engineers using coding assistance, and the application of GenAI in CIB for credit analysis, demonstrate tangible benefits in productivity and process efficiency. The Tokenised Deposit Services, leveraging blockchain, represent a significant step towards real-time, always-on cross-border payments, a key differentiator in the global financial landscape. These technological advancements are expected to drive customer acquisition, deepen wealth penetration, and capture greater corridor flows, reinforcing HSBC's competitive position and contributing to its mid-teens ROTE target.

Competitive Landscape: Differentiating in a Dynamic Market

HSBC operates in a highly competitive global financial services market, contending with diversified giants like JPMorgan Chase , Bank of America , and Citigroup , as well as agile fintechs. HSBC's strategic repositioning and technological investments are crucial for maintaining and expanding its market share.

• JPMorgan Chase (JPM): JPMorgan, a diversified financial institution with strong investment banking and digital services, often exhibits greater efficiency in digital offerings and faster innovation cycles. HSBC, however, differentiates itself through its extensive global network and deeper access to Asian markets, offering tailored solutions for high-net-worth individuals and comprehensive cross-border services. While JPMorgan's diversified revenue streams may lead to strong cash flow trends, HSBC's geographic diversification enhances its market share capture in emerging economies. JPMorgan's P/E ratio of 15.93 and P/B ratio of 2.46 suggest a higher valuation than HSBC's 13.05 P/E and 1.28 P/B.
• Bank of America (BAC): Bank of America, with its massive U.S. customer base and focus on domestic retail and commercial banking, may have a more efficient cost structure in its home market. HSBC's unique value proposition lies in its global reach, providing more comprehensive cross-border services for its Wealth and Personal Banking clients. While Bank of America's larger retail network in the U.S. can lead to greater market share capture domestically, HSBC's strategic adaptability for global clients and personalized wealth solutions offer a distinct advantage for international needs. Bank of America's P/E ratio is 14.79 and P/B ratio is 1.31.
• Citigroup (C): Citigroup shares similarities with HSBC in its global banking and markets segments and emphasis on international markets. However, Citigroup often has a more aggressive focus on institutional clients and potentially faster growth in capital markets due to technology investments. HSBC's balanced approach across wealth, commercial, and global banking, particularly its strong brand in personal banking, fosters greater customer loyalty and recurring revenue. While Citigroup might show stronger ROE trends from high-return activities, HSBC's market positioning for retail wealth services, especially in Asia and the Middle East, provides a competitive edge. Citigroup's P/E ratio is 13.62 and P/B ratio is 0.91.

HSBC's primary competitive advantages, or moats, are its global network and strong brand recognition. The global network, with 5,000 trade specialists in over 50 markets, enables notably faster cross-border transactions and deeper market access, particularly in Asia and the Middle East, enhancing customer loyalty and potentially leading to stronger recurring revenue and superior margins. Its strong brand fosters trust, especially among high-net-worth clients, contributing to better customer retention. However, HSBC faces vulnerabilities, including regulatory exposure in key markets and potential digital innovation gaps compared to some rivals.

Broad industry trends, such as the increasing demand for AI-driven data centers and energy infrastructure, present revenue opportunities for HSBC in project financing. Corporate customers are currently in a "wait-and-see mode" regarding large investments due to macroeconomic uncertainty, but deposit behavior remains normal. HSBC's ability to support customers in reconfiguring supply chains and adapting to evolving trade patterns, leveraging its expertise, allows it to deepen relationships and acquire new clients, even in uncertain times.

Risk Assessment: Addressing Headwinds

HSBC revised its full-year 2025 ECL guidance upwards to around 40 basis points, partly due to challenges in Hong Kong Commercial Real Estate (CRE). The Q2 2025 ECL charge of $1.1 billion included corporate impairments and a charge for Hong Kong CRE, reflecting model updates and a weak market characterized by declining office rents and softening property values. Challenges are concentrated in the secured portfolio, particularly retail and office collateral, where credit migration was predominant in H1 2025.

Despite these short-term pressures, management expresses confidence in the overall credit quality of the Hong Kong CRE book in the medium to long term. Residential development has stabilized due to policy support and a robust rental market. While office CRE faces oversupply, government actions to restrict land sales are expected to support recovery. HSBC's exposure to weak lenders in Hong Kong CRE is limited to approximately $1.5 billion (less than 5% of the book), against which it holds $0.5 billion in ECL. The average loan-to-valuation (LTV) on substandard and impaired secured portfolios is strong (46% and 58% respectively), and 90% of the unsecured portfolio is investment grade. In mainland China, management believes the real estate sector has hit a trough, with exposure materially reduced and stabilization measures taking effect.

The external macroeconomic environment remains uncertain, with trade policy shifts dampening business confidence and constraining investment. HSBC has modeled scenarios contemplating significant tariff increases, estimating a low single-digit percentage impact on group revenues and an incremental $0.5 billion in ECLs in a plausible downside scenario. However, management emphasizes that tariffs are not a new feature of global trade, and HSBC's extensive network and expertise position it to help customers adapt. The company's diversified revenue streams and strong deposit base provide resilience against these uncertainties. While corporate customers are in a "wait-and-see mode" regarding CapEx, deposit behavior remains normal, and there are no early warning signs of significant drawdowns. The expected accounting dilution loss of $1.2 billion to $1.6 billion from the Bank of Communications (BoCom) share issuance is treated as a material notable item, with no material effect on CET1 or distribution policy.

Conclusion

HSBC is executing a clear and compelling strategy to transform into a more focused, agile, and technologically advanced global bank. Its multi-year journey of strategic divestitures and a significant organizational restructuring are designed to unlock value by concentrating resources on high-growth areas, particularly its home markets of Hong Kong and the UK, and its International Wealth and Premier Banking and Corporate & Institutional Banking segments. The bank's robust financial performance in the first half of 2025, coupled with its reaffirmed mid-teens ROTE target for 2025-2027, underscores the effectiveness of this strategic pivot.

Technological differentiators like HSBC TradePay and the innovative Tokenised Deposit Services, alongside substantial investments in AI and GenAI, are not just enhancing operational efficiency but are also fortifying HSBC's competitive moats in cross-border payments and customer service. While macroeconomic uncertainties, including trade policy shifts and challenges in Hong Kong's commercial real estate, present risks, HSBC's conservative risk management, strong capital base, and disciplined cost control provide resilience. The company's commitment to consistent shareholder returns through dividends and share buybacks further strengthens its investment appeal, positioning HSBC as a compelling opportunity for discerning investors seeking exposure to a globally connected, strategically focused, and technologically evolving financial institution.