HSBC Navigates a Profit Boost Amid Trade Headwinds: BofA Sees Near-Term Challenges Ahead

HSBC’s first-quarter 2025 results delivered a mixed performance, with strong quarterly growth offsetting year-on-year declines and underscoring both strategic progress and lingering macroeconomic risks. The bank reported a pre-tax profit of $9.48 billion—surpassing consensus estimates by 15%—while revenue hit $17.65 billion, driven by robust performance in wealth management and corporate banking. However, Bank of America (BofA) analysts caution that rising trade protectionism and restructuring costs could cloud the outlook, even as they reaffirm a “Buy” rating.

Q1 Highlights: Momentum Amid Declines

HSBC’s Q1 results marked a sharp rebound from the previous quarter, with pre-tax profits surging 317% on a sequential basis. This improvement stemmed from disciplined cost management and strong contributions from its wealth management division, which saw net interest income rise 12% year-on-year. Corporate/institutional banking also performed well, reflecting resilient demand for cross-border trade financing—a key HSBC strength.

The bank’s $3 billion share buyback program, exceeding Morningstar’s $2 billion expectation, signaled confidence in its balance sheet. “This move reinforces management’s focus on capital returns,” noted analyst Michael Makdad of Morningstar.

BofA’s Mixed Outlook: Lowered Target, Maintained Buy

BofA revised its price target for HSBC to £9.60 per ADR ($64.32) from £10.35 ($67), citing concerns over tariff-related revenue headwinds. Despite the adjustment, the firm maintained its “Buy” rating, citing HSBC’s valuation discounts relative to peers. Key metrics include:
- Valuation: Trading at 1.2 times its 2025 forecast price-to-tangible-book value (P/TBV), below the sector average of 1.5x.
- Dividend Yield: 1.274%, the highest among major European banks, with four consecutive years of dividend growth.

Strategic Moves and Structural Risks

HSBC’s restructuring plan—splitting operations into four regional divisions—aims to save $300 million annually by 2025. However, upfront costs of $1.8 billion over 2025–2026 could pressure short-term earnings. The bank is also exploring asset sales, including its German fund administration business (Inka) to BlackFin Capital Partners, and IT cost-cutting via partnerships with trading firms like Citadel Securities.

The biggest overhang, however, remains macroeconomic uncertainty. BofA analysts highlight U.S. protectionist trade policies—tariffs on steel, aluminum, and autos—as a key risk. HSBC’s CEO, Georges Elhedery, warned that the bank’s Q1 results “did not yet fully reflect the impact of these tariffs,” with ASEAN countries poised to reimpose levies after a 90-day grace period.

Analyst Perspectives: Balancing Hope and Caution

• Manyi Lu (DBS Bank): While restructuring should mitigate risks, tariff impacts could intensify. “The scale of damage hinges on ASEAN’s policy choices,” he said.
• BofA’s Aditya Bhave: U.S. tariffs may add “a few tenths of a percentage point” to global inflation, squeezing corporate margins and trade finance demand—a critical revenue stream for HSBC.

Conclusion: A Strategic Gamble with Attractive Valuations

HSBC’s Q1 results demonstrate its ability to navigate near-term headwinds, but its long-term success hinges on global trade stability and restructuring execution. With a price target now at $64.32—implying a 6% upside from current levels—and a dividend yield of 12.74%, BofA’s maintained “Buy” rating reflects confidence in its valuation.

However, risks loom large. If ASEAN reimposes tariffs, HSBC’s revenue could fall further, offsetting cost savings. Meanwhile, the bank’s valuation at 1.2x P/TBV remains below peers, offering a margin of safety. Investors should monitor trade policy developments and HSBC’s restructuring progress closely.

The bottom line: HSBC’s Q1 was a win, but the road ahead is rocky. For long-term investors willing to bet on its global scale and cost discipline, the stock presents an intriguing opportunity—if trade clouds clear.