HSBC Profits Slide as China Woes and Tariffs Take a Toll

HSBC’s big China bet is backfiring — and it’s hitting the bottom line hard.

Europe’s largest bank just reported a 26% drop in first-half profits, missing forecasts and rattling investors as it took another multi-billion-dollar hit tied to its stake in a struggling Chinese bank and exposure to Hong Kong’s faltering property market.

The bank pulled in $15.8 billion in pretax profit from January through June — shy of the $16.5 billion analysts were expecting — and shares promptly dropped more than 4.5% in both London and Hong Kong.

At the heart of HSBC’s profit slide is its ongoing exposure to Bank of Communications, a Chinese state-owned lender in deep water. HSBC logged a $2.1 billion write-down on its BoCom stake — the second major impairment in two years, following a $3 billion hit in 2024.

CEO Georges Elhedery tried to downplay the damage, calling them “paper losses” that won’t affect dividends or its broader view on China. But analysts aren’t exactly buying the optimism.

At the same time, HSBC added $900 million in expected credit losses, mostly tied to bad loans in Hong Kong’s battered real estate sector. That brought total loan loss provisions to $1.9 billion — and it could rise if property markets don’t stabilize soon.

Since stepping into the CEO role last year, Elhedery has launched a major restructuring plan. That means cutting back in markets where HSBC isn’t a major player — including exiting retail banking in Bangladesh, and reviewing operations in Australia, Indonesia, and Sri Lanka.

He’s also scaling back investment banking in Europe and the US, while shifting more resources into wealth management and high-growth markets in Asia and the Middle East.

Still, operating costs rose 10%, partly due to severance payouts and technology investments as the bank reshapes itself.

Despite the rough numbers, HSBC is trying to keep investors happy. The bank announced a second share buyback this year worth up to $3 billion and confirmed an interim dividend of 10 cents per share.

The bank’s corporate and institutional banking division was a rare bright spot, posting $6.4 billion in profit, up 4% from last year — and the only segment showing year-over-year growth.

HSBC also flagged a potential longer-term hit to profits due to President Trump’s renewed trade tariffs, warning that worsening conditions could push its profitability below the bank’s targeted mid-teens return on tangible equity.

And there’s more pain on the horizon: the bank expects to recognize a $1.4 billion loss later this year when it wraps up the sale of a French mortgage portfolio.

With Chairman Mark Tucker stepping down in October, the search is still on for a permanent replacement — a decision that could shape the bank’s next big moves. Brendan Nelson will take over as interim chair.

Meanwhile, Elhedery is trying to strike a balance: cut costs, simplify operations, and grow wealth management — without blowing up the entire business model.

“Despite the uncertainty, we’re positioned for growth,” Elhedery said. “We’re simplifying and streamlining, and we’re moving fast.”

CNBC, Reuters, and the Financial Times contributed to this report.