HSBC heads into its third-quarter report with an odd disconnect. Last quarter management sounded more confident than at any point in the past year. It lifted its banking net interest income outlook for the fourth straight report, raised its cost-savings target and restarted share buybacks. The market has since marked the stock down 11.4%, trailing the S&P 500 by almost 12 percentage points. The October 27 release, due before the open, is a test of which side has it right.
The Street expects earnings of $2.13 per share, up 18.3% from $1.80 a year ago. That would be solid growth, though below the $2.25 earned in the second quarter. Consensus revenue of $19.1 billion looks alarming beside the stated 42.8% year-over-year decline. That gap mostly reflects a comparison against a much broader reported revenue figure. On the basis management uses, second-quarter revenue was about $19 billion. Forecasters are effectively penciling in a roughly flat quarter after revenue growth accelerated to 7% in the spring. Holding that level would keep the momentum story alive. Slipping below it would suggest the second quarter was a high-water mark.
The guidance progression sets the bar. Banking NII guidance has climbed from $43 billion or better a year ago to at least $46 billion now. A company that keeps raising a number trains its shareholders to expect another raise. Simply reaffirming the figure could therefore land as a mild disappointment. The obstacles are real. Hong Kong interbank rates have been volatile and fell to around 2.62%, which pressures Hong Kong dollar margins, and management also cited currency swings as a risk. The deposit base also needs watching. About half of the $42 billion in corporate and institutional deposit growth last quarter was large and short-term. A runoff of those balances would make the NII upgrade look less durable.
Fee momentum is the second pillar. Wealth fee and other income accelerated to 21% growth, and wholesale transaction banking fees improved to 7% from 2%. Sustaining double-digit wealth growth would support the claim that HSBC is becoming less dependent on rates. The Hang Seng integration offers a more specific checkpoint. New customer acquisition nearly doubled to about 60,000 after Hang Seng adopted HSBC's digital onboarding. Hong Kong lending also grew again after a long stretch of contraction, helping deliver $20 billion of group loan growth. Further gains in both would show the privatization is producing revenue, not just synergy slides.
On costs and credit, the risks are more concrete. Management has already warned of modestly higher 2026 and 2027 expenses from performance pay and faster investment. Savings are running ahead of plan, with $1.7 billion of the new $2 billion target already actioned. Credit guidance of roughly 45 basis points sits above last year's 40. That reflects caution on the Middle East, mid-market stress in the UK and Asia, and Hong Kong office and retail property, which drew an extra $0.2 billion Stage 3 charge. A clean quarter on impairments would ease much of the market's anxiety. Another round of commercial real estate charges would feed it.
Sentiment has cooled noticeably, falling to 6.3% bullish from 20.8% ahead of the last report. That lowers the emotional bar, though not the operational one. The stock trades near $94.57, just above its 200-day moving average. It also sits only about 3% above its post-earnings low of $91.56, far from the $107.85 peak. The central question is whether HSBC can hold revenue near $19 billion and defend or nudge up its NII outlook despite softer Hong Kong rates. If it does, the selloff looks like a mispricing of real momentum. If NII guidance stalls and credit costs creep higher, the market's skepticism will look justified.