By Selena Li and Lawrence White
HONG KONG/LONDON (Reuters) -HSBC Holdings reported a 14% decline in third-quarter pretax profit on Tuesday, hurt by a $1.1 billion charge after losing part of an appeal in a lawsuit tied to Bernard Madoff's Ponzi scheme, history's biggest-ever such fraud.
But the bank also upgraded its income forecast for the year, reflecting the view that rate cuts in key markets such as Hong Kong and Britain will be slower than initially thought. It now expects to make $43 billion
in net interest income in 2025, up from a forecast of around $42 billion in June.
"The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters," Chief Executive Georges Elhedery said in a statement.
Its Hong Kong-listed shares rose 2.2% in afternoon trade.
HSBC posted a pretax profit of $7.3 billion for the third quarter. Before the surprise news of the provision on Monday, expectations were for a pretax profit of $7.66 billion, according to a consensus estimate from analysts compiled by the bank.
In addition to the Madoff provision, the bank also logged an additional $300 million in legal charges relating to historical trading activities in HSBC Bank plc.
HAMPERED BY WRITEDOWNS
The bank also lifted its return on equity target to the mid-teens or better, from an earlier estimate of mid-teens.
That said, the results show how Elhedery's drive to improve profit continues to be hampered by major litigation, ongoing restructuring, and property sector-related charges.
HSBC has booked $5 billion in writedowns on its China bank holding over the last few quarters and losses from deteriorating Hong Kong commercial real estate loans have climbed.
The worsening commercial real estate market in Hong Kong has prompted HSBC to upgrade its credit loss model, it said in the statement.
In the first nine months of this year, it logged an increase of $900 million in charges for non-performing loans compared to the same period last year, with two-thirds of that amount arising from exposure to Hong Kong property.
The losses reflected "higher allowances for new defaulted exposures, the impact of an over-supply of non-residential properties that has put continued downward pressure on rental and capital values", HSBC said.
RESTRUCTURING AND A DEAL
A career HSBC insider, Elhedery has shaken up the bank since assuming the chief executive role a year ago by reorganising operating divisions along East-West lines, shedding sub-scale investment banking units and slashing the ranks of senior managers.
As well as announcing exits from 11 underperforming markets and businesses so far this year, Elhedery has signalled a willingness to invest where he thinks the bank can further grow.
HSBC, which has a market value of $226 billion, announced in October it has offered $13.6 billion to buy out other shareholders in its majority-owned Hang Seng Bank, a Hong Kong lender hit hard by its local property exposure.
It has decided to pause share buybacks for about three quarters to build up the capital required for the deal.
The bank said it would pay an interim dividend of 10 cents a share - its third payment in 2025 following a total of 20 cents announced earlier.
(Reporting by Selena Li in Hong Kong and Lawrence White in London; Editing by Edwina Gibbs)
