- HSBC raises profitability targets for each of the next three years
- Hefty increase in the ordinary dividend also signals confidence in the outlook
- Net interest margins hold firm and no notable increase in sour loans
- Buybacks on hold but could make a comeback
- Shares trade 50% above their 2006, pre-Great Financial Crisis high
“Using the FTSE 350 Banks index as a benchmark on this side of the Atlantic, and the State Street Financial Select Sector Exchange-Traded Fund as a guide to matters in the USA, the full-year results from the big banks have generally got a cool reception, but HSBC seems to be a notable exception,” says AJ Bell investment director Russ Mould.
“The Asia-focused bank met earnings forecasts for 2025, hiked its ordinary full-year dividend by a seventh and raised its profitability targets for the next three years, all of which are helping to more than compensate for the absence of share buybacks, at least in the near term, as HSBC digests the $13.6 billion purchase of the 37% stake in Hong Kong’s Hang Seng Bank it did not already own.
Source: LSEG Refinitiv data
“The cool reception to the full-year results on both sides of the pond seems odd at first glance, given the bumper profits earned and generous cash returns offered to shareholders in the form of dividends and share buybacks.
“Across the Big Five FTSE 100 banks, pre-tax profits came to £50.7 billion, an all-time high that was fractionally ahead of the £50.3 billion generated in 2024 and way ahead of the £35.8 billion zenith reached in 2007, just before the Great Financial Crisis swept around the world.
“Better still, analysts think there is more to come in 2026 and 2027, especially as HSBC raised its return on equity targets for 2026 to 2028, as did Barclays, while Lloyds targeted a higher return on shareholders’ funds in the coming year, too.
Source: Company accounts, Marketscreener, consensus analysts' forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered.
“This surge in profits suggests the sector has finally shrunk itself back to health – after asset disposals and ongoing cost-cutting and productivity programmes – and earned its way back into investors’ affections.
“The Big Five returned just over £31 billion to their shareholders in 2025. Ordinary dividends hit a record high, and only 2024 has ever offered total dividends of greater size, thanks to HSBC’s £3 billion special dividend in that year.
“Meanwhile, buybacks came to £14.1 billion, also the second-highest figure on record, and also behind only 2024.
Source: Company accounts, Marketscreener, consensus analysts' forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered.
“HSBC was a key swing factor here, too, as it paused buybacks after the Hang Seng Bank deal, and it has suggested such cash returns may only recommence in the second half of 2026. NatWest will complete its current £750 million buyback and then pause until the second half of 2027, in light of its £2.7 billion swoop for Evelyn Partners.
“Perhaps this is one reason for why banks’ share prices have just come off the top. Last year was great, but 2024 was better, at least when it came to cash returns, and 2026 may not be quite as good as 2025.
“Some investors may also be getting nervous about any potential fall-out for loan books and the wider economy from private credit, where plunging share prices and gated retail funds speak loudly of gathering concern and bring uncomfortable echoes of how what looked like insignificant real estate funds’ woes were ultimately a warning of problems that were much, much bigger.
“Others may be fighting shy as the banks take a more expansive view and begin to make acquisitions and grow their loan books after a long credit cycle, as well as potentially taking more risk in doing so. Higher risk generally means investors apply a lower multiple of the earnings generated, although this loan growth could yet help to fuel the improvements in profits and returns on equity that analysts expect for 2026 and 2027.
Source: Company accounts.
“Ultimately, the issue may simply be one of valuation, because bank stocks have done so well. The days of banks trading well below multiples of book value, when you could hardly give their shares away, are long gone and all five of the big lenders who form part of the FTSE 100 now trade above multiples of tangible book, or net asset value, per share.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, LSEG Refinitiv data.
“The prospect of lower, if still generous, cash returns must also be considered, although HSBC says it will reassess buybacks on a quarterly basis.
Source: Company accounts.
Source: Marketscreener, analysts’ consensus forecasts. *Buybacks as announced to date.
“All of that said, the banks trade on nowhere near the multiples of book value they were afforded during the boom times of 2005 to 2007.
Source: Company accounts, LSEG Refinitiv data. Q4 2025 price to tangible net asset value multiples based on share prices as of 11:30 on 25 February.
“While no-one wants to see any evidence of the sort of alphabet soup of highly-leveraged products and speculative lending in real estate that led to bumper profits back then, only for hubris and then nemesis to inevitably follow, the much lower valuations on offer today at least support the argument that the banks are less risky than they turned out to be 20 years ago, and a potentially decent source of income for investors in the process.”
