HSBC 1Q26 Results In Line; Wealth Management Drives Non-Interest Income Growth

Overview

Goldman Sachs published a commentary on HSBC's 1Q26 results, viewing overall performance as in line with expectations. The core highlight is strong growth in non-interest income driven by wealth management, partially offset by higher operating and credit costs. Management raised full-year bank net interest income guidance and maintained capital return targets; Goldman Sachs reiterates its Buy rating.

Core views

Revenue performance was mixed: Non-bank net interest income was $7.8bn, beating expectations by 9%, primarily benefiting from a 15% year-over-year increase in wealth management fees. Bank net interest income was $11.2bn, in line with expectations but down 5% quarter-over-quarter due to declining HIBOR. Net new money totaled $39bn, with Asia contributing $34bn, indicating business expansion momentum. Cost and risk pressures emerged: Operating costs were $8.7bn, 5% above expectations, mainly due to increased variable compensation accruals. Credit costs were 52bps, higher than expected, driven by $0.3bn in provisions for the Middle East and $0.4bn for UK fraud cases. Management raised the full-year credit cost guidance to 45bps. Capital and returns remained robust: The CET1 ratio was 14.0%, slightly above expectations, with an interim dividend of $0.10 per share announced. No buyback was announced, consistent with Goldman Sachs' expectation for resumption in 2Q26. Management reiterated its three-year targets for 2026-2028: 5% annualized revenue growth, ROTE ≥17%, and a 50% dividend payout ratio.

Analysis framework

Goldman Sachs employs a sum-of-the-parts valuation logic, using PE and DDM models for London and Hong Kong shares respectively. The core analytical thread focuses on whether non-interest income growth can offset interest rate volatility and credit cost pressures: 1) Validating the resilience of light-capital income through wealth management fees and net new money; 2) Tracking the raised bank NII guidance reflecting an improved interest rate outlook; 3) Assessing capital buffer capacity via CET1 ratios and RWA changes. The valuation premium stems from HSBC's deposit-centric hedging advantages and wealth business growth potential.

Methodology notes

• Valuation MethodPE/PEG valuation

  Applying a 12.0x 2027E PE target multiple for HSBA.L

  Assigning a PE multiple higher than the European bank average of 10.5x reflects HSBC's structural advantages, such as its deposit-centric model and wealth growth potential

• Valuation MethodDDM Dividend Discount

  Using a two-stage DDM model for 0005.HK

  Discounting future dividend cash flows based on a long-term 50% dividend payout target to assess the intrinsic value of Hong Kong shares

• Company Fundamentals & Financial FrameworkEarnings Quality Analysis

  Differentiating between bank/non-bank NII and variable compensation impacts

  Deconstructing revenue structure and cost drivers to judge earnings sustainability and the credibility of management guidance

• Financial Industry Specific MetricsProvision Coverage / Asset Quality

  Credit Cost (CoC) guidance raised to 45bps

  Assessing asset quality trends through provision changes; Middle East and UK specific cases impact short-term metrics but do not alter the long-term stability assessment

Key data

• 1Q26 Pre-Tax Profit$10.1bn3% above expectations, in line with consensus
• Non-Bank Net Interest Income$7.8bn9% above expectations, +6% YoY
• Wealth Management Fees+15% yoyDriven by investment and insurance distribution
• Credit Costs52bps4bps above expectations; full-year guidance raised to 45bps
• CET1 Ratio14.0%Slightly above expectations, in line with consensus
• 2026 Bank NII Guidance$46bnRaised from $45bn; consensus $45.8bn

Impact & implications

The report suggests that HSBC's strong wealth management growth can partially offset interest rate volatility and credit cost pressures, with structural advantages supporting a valuation premium. For the industry, this validates the resilience of the light-capital income model during a declining interest rate cycle, though peer competition and a global trade slowdown's potential impact on non-interest income warrant attention.

Risks

• Bank net interest income weaker than expected, including faster-than-expected Fed rate cuts or widening spreads between HIBOR and the federal funds rate
• Slower non-interest income growth due to global trade deceleration or intensified peer competition
• Reversal in operating efficiency improvement trajectory due to obstacles in organizational simplification measures

What to watch

• Whether 2Q26 credit costs fall back to 48bps as guided
• Whether share buybacks resume in 2Q26
• Sustainability of net new money growth in wealth management