The HSBC (LSE: HSBA) share price is a thing of wonder right now. It’s up 5% in the last month, 45% over one year and 205% over five. The FTSE 100 bank is doing so well I’m starting to feel uneasy. What’s going on?
To be fair, I could ask the same question about Barclays, NatWest and Lloyds. They’ve had a good run too. My answer would largely be the same: higher interest rates.
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Skyrocketing FTSE 100 bank
Elevated rates have allowed banks to widen net interest margins, the gap between what they pay savers and charge borrowers. Profits have surged as a result. Asia-focused HSBC posted a full-year profit of £30.3bn in 2023, up 29% on the previous year. It then topped that with $32.3bn in 2024, a more modest 6.6% rise but still impressive.
This financial year, cracks have appeared. On 28 October, HSBC’s unviled a reported profit before tax of $23.1bn for the first nine months of 2025, down $6.9bn on the same period in 2024. Part of that was due to a $1.4bn legacy legal provision linked to the Bernie Madoff scandal. But there are broader signs of moderation. Return on tangible equity slipped from 15.5% to 12.3%.
The board also paused share buybacks for nine months after offering £13.5bn to buy out minority investors in Hong Kong’s Hang Seng Bank. Given buybacks had been running at $3bn per quarter, investors were disappointed and the shares dipped. Management insists the acquisition will deliver long-term value though. The shares quickly recovered.
Meanwhile, global interest rates are expected to fall, which could squeeze margins. Yet the share price keeps ploughing ahead. Why?
Even with some cooling, profits remain historically high. 2023 and 2024 were both record years. Investors may simply believe earnings are settling at a structurally higher level than before the rate-hiking cycle.
There are risks. Some analysts worry about rising bad debts, particularly in China as the property crisis drags on. Impaired loans at Hang Seng reached 6.7% of gross lending last June, up from 2.8% at the end of 2023. However, HSBC’s common equity tier 1 ratio of 14.5% provides a solid capital buffer.
Falling interest rate threat
Chief executive Georges Elhedery is also pushing through a strategic overhaul, trimming operations across Europe and North America to sharpen the bank’s Asian focus. With US-China rhetoric softening, some investors may feel geopolitical risks have been overplayed.
HSBC’s undemanding valuation may also be supporting the rally. Despite the surge, the shares still trade on a modest price-to-earnings ratio of just under 14. The price-to-book ratio of roughly 1.4 to 1.5 is higher, but hardly a deal-breaker.
The dividend yield has slipped to 3.9% as the share price has risen, but the forward yield for 2026 sits nearer 4.4%.
After such a strong run, some cooling would be natural. I’m not the only one who thinks HSBC shares could slow. The 14 analysts covering the stock produce a median one-year share price target of 1,230p. That’s 5.5% below today’s 1,302p.
The next year may not match recent excitement but I think HSBC is worth considering for patient investors. So what’s going on? Rather a lot, and a lot of it is rather good. As ever, investors should take a long-term view.
