HSBC’s Q3 Profit Plunges 14% to $7.3 Billion Amid $1.1 Billion Madoff Legal Hit

Banking giant takes massive legal charge tied to decades-old scandal

HSBC's third-quarter earnings report reveals the staggering cost of legacy legal battles—profits tumbled 14% year-over-year to $7.3 billion, dragged down by a $1.1 billion charge related to the Madoff Ponzi scheme fallout.

The Madoff Shadow Looms Large

Nearly two decades after Bernie Madoff's epic collapse exposed Wall Street's complicity, financial institutions continue paying the price. HSBC's latest hit shows how old sins cast long shadows across balance sheets.

Regulatory Reckoning Continues

While traditional banks wrestle with legal baggage from past failures, decentralized finance operates without such centralized liability—no surprise institutions keep getting caught holding bags they didn't even know they were carrying.

Another reminder that in traditional finance, the fines always come due—just ask the shareholders footing this $1.1 billion bill.

HSBC boosts NII and wealth income despite legal drag

Despite the legal storm, HSBC’s net interest income (NII) for Q3 climbed 15% from a year ago to hit $8.8 billion. The bank also saw its wealth division income jump 30% year-on-year, totaling $2.68 billion for the quarter.

The strong wealth performance came as HSBC leaned deeper into its fee-driven strategy. It now expects double-digit annual growth in fee and other income from the wealth segment over the medium term.

For full-year 2025, HSBC said it’s aiming for banking NII of $43 billion or more, as it sees momentum from policy rates in key markets like the UK and Hong Kong.

“The intent with which we are executing our strategy is reflected in our performance this quarter, despite taking legal provisions related to historical matters,” said Georges Elhedery, the bank’s Group CEO.

There’s more. HSBC also announced this month that it plans to take Hang Seng Bank private, a MOVE that values the subsidiary at over HK$290 billion ($37 billion).

The non-performing loan ratio at Hang Seng hit 6.69% in H1 2025, driven by ongoing problems in the property sector. Elhedery described the privatization move as part of the bank’s long-term view on Hong Kong.

Meanwhile, HSBC shares in Hong Kong ROSE 1.3%, shrugging off the Madoff provision. But the overhang from this 15-year-old fraud saga isn’t over yet. The legal fees are rising. The court battles aren’t done. And HSBC’s CET1 just got a little thinner.

All of this comes at a time when the bank’s Core performance is actually holding up. Q3 revenue came in at $17.8 billion, ahead of the $17.05 billion estimate.

But with litigation costs biting harder than ever, investors will be watching the next quarter for signs of whether this legal bill is a one-off… or the start of something longer.

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