HSBC’s stock (NYSE: HSBC) has performed quite well this year, increasing by approximately 9% since the beginning of January. In comparison, competitor JP Morgan (NYSE: JPM) has risen about 5% during the same timeframe. So what is going on with HSBC, and what are some trends that might influence the company’s future performance?
Strong Q1 Earnings
HSBC’s financials have remained relatively strong. The banking powerhouse announced earnings for Q1 2025 that surpassed expectations. Although revenues fell by 15% from the previous year to $17.65 billion, a decline driven primarily by business divestitures in Canada and Argentina, profits before tax reached $9.48 billion, reflecting a 25% decline compared to the previous year, yet exceeded forecasts. Meanwhile, pre-tax profit soared by almost 317% compared to the prior quarter, showing substantial sequential growth. Strong results in the Wealth sector, Foreign Exchange, and Debt and Equity Markets have contributed to profits and revenue in recent quarters.
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Wealth Management Momentum
HSBC is more frequently counting on fee-based offerings within divisions like its Wealth and Personal Banking segment to propel growth. Revenue from the Wealth sector increased by 21% year-over-year during Q1, driven by robust business activities in Asia. HSBC has been placing greater emphasis on affluent clients in Asia, with its Hong Kong operations witnessing a 29% sequential increase in new customers. The Global Private Banking division has also performed successfully, fueled by strong brokerage and trading activity in Asia. Asset management revenues have been boosted by growing assets under management, favorable market trends, and increased life insurance-related revenue. Growing market volatility is also anticipated to benefit the wealth division to some extent as individuals look for advisory services, while brokerage and trading operations may also see benefits.
Trade War Risks
The banking giant has warned that demand for loans and credit quality might be impacted in the future due to the wider effects of U.S. President Donald Trump’s tariffs and trade war. While the earnings haven’t yet captured the entire impact of the recently announced reciprocal tariffs, HSBC is a distinctly trade-centric banking institution. During its earnings call in late April, HSBC indicated that it was observing a significant decline in transaction volumes along the U.S.-China axis for sectors that were not exempt from tariffs. HSBC also mentioned that an economic deceleration could have a low single-digit effect on its revenues for the fiscal year, noting it might face around $500 million in additional anticipated credit losses. Nonetheless, the advancements in U.S.-China trade discussions in the past couple of days have increased expectations for de-escalating tensions.
Is HSBC Stock Good Value?
There are a few reasons for optimism regarding HSBC. To begin with, its valuation is considered fair, with the stock currently trading at just over 1x tangible book value (net assets minus goodwill). The bank is also prioritizing enhancing efficiency and reducing costs, aiming for annualized savings of $1.5 billion by the close of 2026. In January, HSBC detailed its plan to scale down its mergers and acquisitions and certain equities businesses in Europe and the Americas, redirecting its attention towards the more lucrative Asian markets.
HSBC is intensifying its focus on capital returns, having recently increased its share buyback authorization to $3 billion, with the new buyback anticipated to be finalized before its 2025 interim results. This may help support the stock price. Moreover, the bank is targeting a mid-teens return on average tangible equity between 2025 and 2027, which is higher than the industry average. Conversely, HSBC’s core net interest income (NII) could face pressure due to lower interest rates, which may pose a challenge for overall revenue growth, as net interest income represents approximately half of the bank’s total revenue. Check our analysis of HSBC’s valuation for a closer look at what’s driving our valuation for HSBC stock.
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