HSBC Holdings (NYSE:HSBC) plans to shift senior staff pay from fixed allowances to bonuses starting in 2028, Bloomberg reported this month, citing a memo it had seen. It is the latest step in a rebuild CEO Georges Elhedery has run for two years, including business sales, closures and hundreds of job cuts.
A bonus-heavy pay model only works if profits keep coming, and a large share of them come from one city. So can Hong Kong’s wealth business keep growing while Beijing tightens the rules around it?
HSBC lends to companies and households, handles payments for business customers, and runs a wealth arm that manages money for affluent clients, with Asia at its center. Wealth is where the growth is, yet the stock’s multiple is no higher than the sector’s, so the price gives HSBC little credit for it. The company is one of the 10 No-Brainer Stocks to Buy Now.
Photo by Arturo Añez on Unsplash
Wealth Is Driving HSBC’s Profit Growth
In the half-year letter, Elhedery told shareholders that wealth grew 18% on a constant-currency basis, which he tied to the bank’s Asia franchise. Group profit before tax rose 23% in the first half. Return on tangible equity, excluding one-time items, came in at 19.1%, ahead of the 17% or better HSBC has promised for 2026 through 2028.
Over the past five years, earnings per share grew about 44% a year, against about 19% a year over the past three. That is a slower pace, though still a double-digit one. If you’re looking for more European bank stocks, check out 8 Best European Bank Stocks to Buy According to Hedge Funds.
Hong Kong Supplies Over a Quarter of Profit
Hong Kong made 26.3% of group profit before tax in the first half. That puts more than a quarter of the bank’s profit under one city’s rules and one city’s clients, with the wealth business at the center.
The risk surfaced the day after those results. Bloomberg reported that HSBC, Prudential and Standard Chartered shares fell after Caixin Global said China is extending personal income tax to returns on insurance policies bought in Hong Kong. Early cases showed a 20% tax on dividends and interest. The story added that, earlier in the year, shares of regionally exposed banks had dropped on reports that some lenders paused opening Hong Kong accounts for mainland Chinese clients.
Bloomberg’s story did not say how much of HSBC’s wealth income depends on mainland insurance buyers, so the damage is hard to size from outside. It does show that mainland money flowing into Hong Kong is a policy choice made in Beijing. To the extent wealth growth relies on those clients, a rule change can slow it faster than HSBC can replace it. Investors who want more Asian growth can see our ranking of 10 Fastest Growing Asian Stocks to Buy Now.
What Investors Pay for That Growth
Investors pay 10.87 times forward earnings for HSBC, almost level with the Financials sector median of 10.94. Its own five-year average is 27.82, but that figure reaches back to years of much smaller profits, so the sector is the fairer comparison. The multiple rests on adjusted earnings. If you’re interested in undervalued stocks, we recently compiled a report on 10 Best Undervalued Stocks to Buy in October.
The bank’s capital cushion has also thinned, with its CET1 ratio at 14.1% after the Hang Seng Bank privatisation. That is near the bottom of its target range, yet the board has restarted buybacks. For a shareholder, that means owning a bank priced like its peers while more than a quarter of its profit comes from a single city.
So can Hong Kong keep powering HSBC? The first-half numbers, which ended before the tax report, say yes. Third-quarter results due early next week will be the first to show whether that report dented growth. The number to watch is Hong Kong’s share of group profit, which was 26.3% in the first half.
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This article is originally published at Insider Monkey.
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