HSBC shocker plays on big bank growth fears
BREAKINGVIEWS-HSBC shocker plays on big bank growth fears The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, Oct 27 (Reuters Breakingviews) - HSBC HSBA.L, 0005.HK straddles everything from UK and Hong Kong retail banking to global corporate lending. The London-headquartered group is therefore a revealing bellwether for the wider sector. When its shares fall 7% after a quarterly earnings update, then, there's likely to be a message for rivals. In this case, slowing interest income raises the prospect of banks not benefiting much from any further rate hikes.
One item stands out in HSBC's third-quarter update, released on Tuesday. It's called "banking net interest income", and it measures the bits of the top line that are directly affected by interest rates: everything earned on mortgages, credit cards, securities and the like, minus what's paid out to depositors. The figure was $11.7 billion in the July-to-September period, which was barely higher than in the previous three-month spell, and was below analysts' expectations of $11.9 billion.
Since banking NII generally accounts for over 60% of HSBC's total revenue, slow growth is a major concern. By late morning UK time on Tuesday, the bank's market capitalisation had slumped by $21 billion to $290 billion. One reason for such a sharp reaction is that HSBC's outgoing finance chief Pam Kaur cited "competitive pressure on deposits in Hong Kong and the UK". In other words, retail customers are increasingly able to get a better rate on their idle cash by shopping around, forcing banks to pay up. That makes it sound like a trend, not a blip.
Indeed, generally higher-rate fixed-term deposits jumped from 36% to 38% of the total in HSBC's Hong Kong business between the second and third quarters. That suggests depositors are becoming more "rate sensitive", in industry jargon. If that continues, the upshot is that customers, rather than banks, will benefit most from any further rate hikes. Analysts may therefore need to go back to the drawing board, since they are currently projecting healthy growth for HSBC's banking NII in the coming years, which now looks in doubt.
The fact that deposit markets are getting more competitive in Britain and Hong Kong simultaneously makes it more likely that other markets, like the United States, could see a similar dynamic. This would feed into recent investor fears that AI agents, like Meta Platforms' META.O Muse, will make it easier for customers to shift cash around in search of extra yield, implying higher interest costs for banks. Analysts currently expect the major Western global systemically important banks to make an average return on tangible equity of 16% this year, according to Visible Alpha data, compared with 15% in 2025. Perhaps the only way from here is down.
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CONTEXT NEWS
HSBC on October 27 reported $11.7 billion of "banking net interest income" for the third quarter of 2026, referring to its bespoke measure of revenue from taking deposits and lending. That was lower than the average analyst forecast of $11.9 billion, according to company-compiled consensus estimates.
London-listed shares in the UK-based, Asia-focused lender were down 7% as of 1027 GMT on October 27.
(Editing by George Hay; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))