HSBC Profits Soar 32% as It Hands $2.7B to Shareholders and Fuels Calls for Tougher UK Bank Tax

HSBC has reported a 32% rise in third-quarter pre-tax profit to $9.6 billion (£7.2 billion) and announced $2.7 billion (£2.03 billion) in shareholder returns, a day before Chancellor John Healey delivers the Budget amid calls for higher taxes on banks.

The London-headquartered bank's profit was slightly below the $9.7 billion (£7.28 billion) average estimate cited by Reuters. The increase was supported by higher net interest income and by the non-recurrence of $1.4 billion (£1.05 billion) in legal provisions recorded a year earlier.

HSBC approved a third interim dividend of 10 cents a share and announced a new share buyback of up to $1 billion (£750 million). It completed a separate $1 billion (£750 million) buyback on 28 September.

Legal Provisions Boost Annual Comparison

Net interest income rose 6% year on year to $9.3 billion (£6.98 billion), from $8.8 billion (£6.6 billion). HSBC cited deposit growth and higher yields from reinvesting its structural hedge. These gains were partly offset by lower income from Markets Treasury and the impact of one-off items. Banking net interest income, a separate measure, rose by $600 million (£450 million) to $11.7 billion (£8.78 billion).

Operating expenses fell 12% to $8.8 billion (£6.6 billion), but the fall partly reflects the absence of last year's legal provisions. These comprised $1.1 billion (£825 million) relating to a claim in Luxembourg brought by Herald Fund SPC in connection with the Bernard L Madoff Investment Securities fraud, and $300 million (£225 million) relating to historical trading activities at HSBC Bank plc.

Excluding notable items, the bank said higher planned spending, technology investment and inflation were were partly offset by savings from its simplification programme.

HSBC reported a return on tangible equity of 18.2%, excluding notable items. Expected credit losses fell 17% to about $800 million (£600 million).

Market Reaction Focuses on Revenue Miss

HSBC's Hong Kong-listed shares fell about 6% after the results. Revenue rose 5% to $18.6 billion (£13.95 billion), below the $19 billion (£14.25 billion) forecast cited by Reuters, and investors focused on slowing growth in the wealth business.

The bank also faced disruption last week. Customers had difficulty accessing some services during a Google Cloud outage on 20 October. HSBC later said services had returned to normal.

Rising Pressure for Higher UK Bank Taxes

The results have intensified the debate over bank taxation. The Trades Union Congress (TUC) estimates that raising the bank surcharge to 16% could generate £24 billion over four years, and that a 35% rate, matching the energy-sector windfall levy, could raise £60 billion over the same period. TUC general secretary Paul Nowak has argued that banks should contribute more to support households and businesses.

The New Economics Foundation (NEF) has described some bank profits as a 'stealth subsidy', pointing to interest the Bank of England pays on commercial banks' reserves and the public costs linked to quantitative easing. Economist Abhijay Sood said restoring the surcharge to 8% would raise £5.8 billion to £7.6 billion by the end of the parliament, depending on the assumptions used.

Record Business Distress Piles on Budget Pressure

Separately, Begbies Traynor's latest Red Flag Alert report estimated that 738,144 UK businesses were in what the firm classes as 'significant' financial distress in the third quarter, the highest number since its research began in 2004. The measure is not a count of insolvencies.

Support services, construction, and real estate and property services were among the sectors with substantial numbers of distressed businesses. Julie Palmer of Begbies Traynor warned that leisure and hospitality firms faced pressure from higher wage bills, inflation and borrowing costs.

The Budget, due on 28 October, will determine whether the government changes how banks are taxed.