HSBC to outperform most global peers in 2025 despite ongoing revamp

HSBC Holdings PLC is set to outperform most of the world's largest banks in terms of profitability and cost efficiency in 2025 as it continues to restructure its franchise.

Europe's top lender by assets is targeting $1.5 billion of annualized cost savings by the end of 2026 as part of a revamp launched in October 2024 by new CEO Georges Elhedery. The group aims to maintain a return on tangible equity (ROTE) target in the mid-teens between 2025 and 2027 while it reorganizes its management structure and exits remaining noncore businesses to focus on more profitable units central to its strategy.

HSBC's latest consensus report shows the group is expected to book extra expenses of about $1.81 million related to the revamp and business exits in 2025, but analysts consider the bank well positioned to execute the new plan without a material impact on performance.

"HSBC's cost efficiency is really good compared to peers of similar size," Vitaline Yeterian, senior vice president, European financial institution ratings at Morningstar DBRS, said in an interview. Achieving its new cost targets should not be a challenge for the group and the revamp is unlikely to affect revenues significantly, the analyst said.

HSBC is projected to book a lower efficiency ratio compared to the average for peer global systemically important banks (G-SIBs) in 2025, meaning it would maintain a better cost-to-income balance, based on S&P Global Market Intelligence and Visible Alpha data. Visible Alpha is a part of Market Intelligence. The group's return on average equity, payout ratio and common equity Tier 1 (CET1) are projected to surpass the G-SIB average too, pointing to strong profitability and high shareholder distributions expected this year.

Analyst estimates compiled by HSBC in its March 17 consensus report show its revenue and ROTE are projected to increase in each of the next three years, in line with the group's targets.

"HSBC is very strongly profitable right now and the guidance they've given indicates that this will remain the case in the medium term," Richard Barnes, senior director in S&P Global Ratings' financial services ratings team, said in an interview.

Good track record

The group's restructuring track record over the past few years provides some confidence in its ability to execute its plans, Barnes noted. Furthermore, the current restructuring is a continuation of previous, larger cost-saving efforts with most noncore business disposals already completed, Barnes said.

HSBC's previous two restructuring programs, which ran from 2015 to 2017 and 2020 to 2022, cost the bank about $6 billion to $7 billion and resulted in cost savings of roughly the same size, Bank of America analysts estimated. Efficiency savings from the past two revamps have helped HSBC keep overall underlying costs relatively stable in the 10 years between 2014 and 2024, with costs only increasing by about 10% over the period, the analysts said in a Jan. 8 analysis. Staff cuts from the revamps also appear sustainable, as total headcount, adjusted for business exits and acquisitions, has fallen by cumulative 17% in the 10-year period, the analysts noted.

– Compare HSBC's performance to that of other G-SIBs on Capital IQ Pro here. – Access HSBC's detailed M&A history here.

HSBC announced cost savings of $5.6 billion from its 2020 to 2022 revamp, when it also cut 6,860 jobs, data compiled by Market Intelligence shows. Its group headcount dropped by a further 9,557 between 2023 and 2024, according to the data.

HSBC has partly or fully disposed of about a dozen businesses since 2023, including operations in Canada, Russia, Argentina, France, Armenia and Mauritius. The bank recently announced the sale of its retail banking business in Bahrain, plans to offload a €7 billion French mortgage portfolio and is reportedly close to selling two businesses in Germany.

The group targets operating cost growth at about 3% for 2025, excluding business exit-related costs and other notable items, which is an "achievable number," according to Barnes. "Wage inflation has come down since a year or two ago and they have roughly $300 million of savings from the early stages of the cost save plan," the analyst noted.

Benign i-bank exits

Apart from planned cost savings, the bulk of which would come from divisional restructuring and the merger of two wholesale banking divisions, HSBC's aims to reallocate $1.5 billion of costs from low-returning nonstrategic areas to growth businesses. In line with this reallocation objective, HSBC intends to exit its equity capital markets underwriting and M&A advisory operations in the US and Europe.

Those exits are unlikely to have a material effect on HSBC's revenue given their insignificant contribution to group results so far, Morningstar DBRS' Yeterian said. It is questionable whether they need to compensate for exiting those investment banking operations given these were low-profitability businesses anyway, according to Yeterian.

Revenue loss linked to the exits is likely to be limited and HSBC has "a wealth of options" to reallocate the costs, meaning there is further upside to revenues over the medium term that could push 2027 ROTE to up to 17%, Bank of America analysts said in a March 14 note. Even if the reallocation of cost takes longer, ROTE should stay high, the analysts said, noting HSBC's revenue upside potential is currently underappreciated.

"The outlook for HSBC, at least for 2025, is robust... They are guiding for return on tangible equity that is going to remain strong," Yeterian said.