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HSBC’s profits declined by almost a third in the second quarter as Europe’s largest lender took a charge on its stake in a Chinese bank and racked up costs axing staff.

Pre-tax profits fell 29 per cent year on year to $6.3bn, falling short of the almost $7bn forecast by analysts. Operating expenses, which include severance costs linked to chief executive Georges Elhedery’s sweeping restructuring, climbed 10 per cent to $8.9bn in the quarter.

The UK-based lender, which generates the bulk of its profits in Asia, also recorded a $2.1bn impairment on its stake in China’s Bank of Communications after the country’s finance ministry recapitalised the lender. HSBC last year reported a $3bn charge on the value of its stake in the Chinese bank.

Shares in HSBC fell more than 4 per cent in London on Wednesday, dragging down the wider FTSE 100 index.

Elhedery’s strategy since taking the top post last year includes attempting to simplify the bank’s sprawling global operations and exit businesses, such as banking in Canada and investment banking in the US, where it is not a market leader.

But HSBC has embarked on a restructuring as it also contends with a prolonged property slump in Hong Kong and mainland China, adding to challenge for the new chief executive.

Elhedery on Wednesday struck a positive tone despite the weaker than expected earnings.

“We are well-positioned for further growth with this period of uncertainty highlighting our differentiated strength,” he said. “We continue simplifying the bank . . . and we are progressing at pace with the exit of non-strategic activities.” The bank added that it remained “on track” to achieve $1.5bn in annualised cost savings by 2027.

HSBC did warn that profitability risked an indirect hit from US President Donald Trump’s tariff regime in the coming years, saying that it had planned for multiple scenarios including a worst case one that involves governments slashing interest rates as low as 1 per cent.

In a sign of the threat posed by the downturn, the bank set aside $1.1bn in the second quarter for bad loans, more than the $954mn analysts had expected. The provision included $0.4bn of charges related to Hong Kong’s commercial real estate sector.

Elhedery struck a note of optimism about the UK economy, however, citing three trade agreements agreed in succession by the Labour government, as the bank’s earnings fell short of expectations.

“Of particular note I want to call out the pace at which the UK has delivered a number of trade agreements,” Elhedery said on a call with reporters on Wednesday, referring to Keir Starmer’s trade deals with the EU, India and the US.

UK revenues were up quarter on quarter by 7 per cent to $3.2bn and its lending balance increased by $7bn on a constant currency basis, mainly in the UK.

Like several of its rivals, HSBC has sought to expand its wealth management business. Revenues at its international wealth and premier banking business climbed 19 per cent in the first half of the year.  

This was led by the private bank’s brokerage benefiting from wealthy clients increasing their trading activity, as well as growth in its insurance business.

Analysts at Citi said the second-quarter results were “solid . . . supported by a very strong performance from wealth”. Under Elhedery, they added, “the strategy continues to take shape, with clear evidence of ongoing cost saves and business simplification”.

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HSBC said French and Swiss authorities were “at an early stage” of investigating its Swiss private bank in relation to alleged money laundering offences connected to two historic banking relationships, warning that while it is not possible to predict the resolution of the investigation, the impact “could be significant”.

The bank also announced a second interim dividend of 10 cents a share and a share buyback plan of up to $3bn.

The FT has previously reported that Europe’s largest lender has been forced to make a second sweep of candidates to replace Sir Mark Tucker as chair as it struggled to find enough suitable candidates.

The London and Hong Kong-listed bank has not ruled out appointing one of its current board members to the role if it cannot find a suitable candidate. Brendan Nelson will take over as interim chair on October 1, when Tucker leaves for insurer AIA.