Europe’s largest bank beats estimates but absorbs hundreds of millions in bad loan charges tied to commercial real estate
A Beat That Came at a Cost
HSBC Holdings, Europe’s largest bank, reported full-year pre-tax profit of $29.91 billion for 2025 on February 25, 2026, beating the consensus analyst estimate of $28.86 billion despite absorbing significant impairment charges linked to its exposure to China’s Bank of Communications and Hong Kong’s troubled commercial real estate sector. Revenue for the year reached $68.27 billion, also ahead of the $67.36 billion consensus. While annual profit declined 7.4 percent compared with the prior year, the bank’s performance in its wealth division and core Hong Kong businesses provided the cushion that allowed it to beat expectations.
The Bad Loan Problem in Detail
The commercial real estate sector in Hong Kong has been under sustained stress for several years, with office values declining roughly 40 percent from their peaks and retail properties also under pressure. HSBC’s 2025 charge in the Hong Kong commercial real estate sector reached $700 million, up sharply from $100 million in 2024, reflecting higher allowances for new defaulted exposures, over-supply of non-residential properties, and model updates for expected credit loss calculations. The bank also booked $2.1 billion in dilution and impairment losses related to its associate Bank of Communications, the large Chinese state-controlled bank in which HSBC holds a significant stake. The BoCom charge reflects the continued stress in China’s financial sector, where years of property market collapse and slowing economic growth have pushed non-performing loans higher across the banking system.
Hang Seng Bank Privatization Completed
One of the significant structural changes for HSBC in early 2026 was the completion of its privatization of Hang Seng Bank in January, with the subsidiary delisted from the Hong Kong Stock Exchange. HSBC paid approximately $14 billion for the buyout, which the bank said would be accretive to earnings and a better use of capital than share buybacks. Chief Executive Georges Elhedery described the deal as an exciting opportunity to grow both Hang Seng and HSBC, with plans to preserve the Hang Seng brand while investing to strengthen its capabilities. The bank said it anticipated revenue and cost synergies from the combined entity but expected those to materialize gradually over the medium term. HSBC has already achieved $1.2 billion in cost savings from its broader organizational restructuring and expects to complete a $1.5 billion savings target by mid-2026, six months ahead of schedule.
Strategy and Forward Targets
Elhedery raised HSBC’s return on average tangible equity target to 17 percent or higher for the period from 2026 to 2028, excluding notable items. The bank’s RoTE was 13.3 percent in 2025. To signal commitment to long-term growth in Asia, HSBC announced it would increase investment in high-growth markets including Hong Kong to $1.8 billion, up from $1.5 billion previously. The wealth division was a particular bright spot, with strong customer growth in Asia driving net new invested assets significantly higher. The Financial Times coverage of HSBC has tracked the bank’s strategic pivot toward Asia over the past several years, as it has divested businesses in North America, Europe, and other markets to concentrate resources where it sees the highest growth potential.
What the Results Say About Hong Kong’s Financial Sector
HSBC’s results offer a mixed but ultimately optimistic signal about Hong Kong’s financial health. The bad loan charges are real and reflect genuine distress in the commercial property sector. But the bank’s ability to absorb those charges while beating overall estimates suggests the underlying franchise remains robust. Hong Kong’s role as a wealth management hub for Asian clients, particularly mainland Chinese high-net-worth individuals, appears to be strengthening rather than weakening. The privatization of Hang Seng Bank consolidates HSBC’s control over one of the city’s most trusted retail banking brands, positioning it to capture more of the growth anticipated as Hong Kong’s economy recovers.
The Broader Picture for Hong Kong Banking
For democracy advocates watching Hong Kong’s financial sector, HSBC’s results present a complex picture. The bank’s heavy dependence on mainland China-linked business — from BoCom exposure to wealth management for mainland clients to exposure to Hong Kong’s China-influenced property market — means its fortunes are inextricably tied to decisions made in Beijing. The Bank for International Settlements has documented how concentration of banking exposure in politically sensitive markets creates systemic risks that extend well beyond individual institutions. HSBC is a global bank that happens to be deeply embedded in a city whose political autonomy has been substantially curtailed. That is the defining tension of doing business in Hong Kong today.
Senior Journalist & Editor, Apple Daily UK
Contact: athena.lai@appledaily.uk
Athena Lai is a senior journalist and editor with extensive experience in Chinese-language investigative reporting and editorial leadership. Educated at a leading journalism school in the United Kingdom, Athena received formal training in fact-checking methodology, editorial governance, and international media standards, grounding her work in globally recognized best practices.
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