HSBC Holdings plc (NYSE:HSBC) posted a stronger-than-expected first-half profit this week and resumed its share buyback program. UBS Group AG (NYSE:UBS) posted its own profit beat, but it’s facing a $125 million fine from U.S. regulators. Hedge funds had already been quietly trimming their UBS positions before that fine even became public.
Why a Clean Beat Isn’t the Whole Story
Europe’s biggest banks are having a strong earnings season, but HSBC is telling the cleaner story of the two. Its profit beat came from wealth management growth, a resumed buyback, and a raised outlook for net interest income. On the other hand, UBS Group AG (NYSE:UBS) beat estimates too, but its win comes with a catch, i.e., a $125 million fine from U.S. regulators for repeated anti-money-laundering failures, alongside a hedge fund base that had already been quietly pulling back heading into the quarter.
This makes you wonder: does a clean earnings beat matter more to investors than a resolved regulatory problem? Or does UBS’s history as a “repeat offender” cast a longer shadow over its recovery than HSBC Holdings plc (NYSE:HSBC)’s cleaner quarter?
HSBC’s Bull and Bear Case
First-half profit rose 23% to $19.5 billion, beating the $18.9 billion analysts expected. HSBC Holdings plc (NYSE:HSBC) resumed its buyback with a plan of up to $1 billion after pausing for three quarters to fund its Hang Seng Bank takeover. It also raised its guidance for net interest income to exceed $46 billion. Wealth revenue grew 18%. The bank added 640,000 new clients in the first half. Corporate and institutional banking is now HSBC’s biggest income source, generating a third of first-half profit. The bank has more than 70 IPOs lined up across Asia.
However, Citi flagged that the new $1 billion buyback came in well below the $2.2 billion investors expected, raising the question of whether HSBC is permanently scaling back its repurchases. The stock dropped from its own record high right after the earnings release. HSBC is also still exiting several businesses, including its Singapore insurance unit, Egypt retail banking, and Australian mortgages, which is a sign of ongoing restructuring rather than pure growth.
UBS’s Bull and Bear Case
Second-quarter net profit rose 17% to $2.8 billion, beating the $2.39 billion analysts expected, while pretax profit jumped 64% to $3.6 billion. UBS Group AG (NYSE:UBS) announced a new $3 billion buyback program. Its cost-to-income ratio improved to 72.9% from 80.5% a year earlier. Its Credit Suisse integration remains on track for completion by the end of 2026, with cumulative cost savings reaching $12.6 billion. CEO Sergio Ermotti said UBS is nearly back to the profitability it had before the Credit Suisse acquisition.
However, UBS was fined $125 million by U.S. regulators just two days before this comparison, the largest-ever civil fine against a broker-dealer under the main U.S. anti-money-laundering law, and a repeat offense after a smaller 2018 penalty for similar failures. Zuercher Kantonalbank called the current share price simply “fair.” UBS’s buybacks also remain contingent on an unresolved Swiss capital rules debate that could force it to hold billions more in reserve capital.
Insider Monkey’s Hedge Fund Data
Insider Monkey’s hedge fund database shows HSBC Holdings plc (NYSE:HSBC) had 18 hedge fund holders as of Q1 2026, down from 25 the quarter before. UBS Group AG (NYSE:UBS) had 37 holders, down from 39. So, hedge funds are bullish on UBS.
Among other large European bank peers, Barclays had 36 holders, up from 29, and Deutsche Bank had 27, up from 24.
Conclusion
Both banks are benefiting from higher interest rates, jumping markets, and growing wealth management. However, UBS recently got hit with a $125 million fine. This shows that taking over Credit Suisse is not just about money because UBS still has to clean up old legal problems. HSBC does not have this extra trouble weighing down its own recovery.
Nonetheless, hedge funds prefer UBS Group AG (NYSE:UBS) over HSBC.
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Disclosure: None. This article is originally published at Insider Monkey.
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