There's an old game in financial markets that never goes out of style.
It works like this: you lower the bar. You convince the market that expectations are rock-bottom. Then the company delivers something mediocre. And everybody celebrates like they just won the championship.
It's the financial equivalent of flunking out, repeating the year, and then squeaking by with a 61 on the makeup exam — while your dad pops champagne.
That's exactly what happened with HSBC this week.
The numbers, no filter
The bank reported pre-tax profit of $29.91 billion for the full year. It beat analyst estimates of $28.86 billion. Revenue came in at $68.27 billion, also above forecast.
Then comes the detail the headline tries to bury: profit fell 7.4% compared to the previous year.
Seven point four percent. In dollar terms, that's a serious hole in shareholders' pockets.
But hey, "beat estimates." Break out the confetti, drop the beat, fire the flare gun.
Nassim Taleb already explained this phenomenon with brutal elegance: the market doesn't measure reality, it measures relative surprise. If the consensus expects the worst, anything above that becomes a positive story. It's the same psychological mechanism that makes a corrupt politician look like "the lesser evil."
You don't have to be good. You just have to be less bad than expected.
What's really going on inside HSBC
Let's take off the suit and look at the body underneath.
Revenue grew 4%. That's real. The wealth management arm and Hong Kong operations performed well. Fine, fair enough.
But the fourth quarter is where things get interesting — and suspicious. Quarterly profit jumped to $6.8 billion, $4.5 billion more than a year earlier. Sounds explosive, right?
Except that number was inflated by "favorable one-off items related to business disposals." In plain English: they sold assets, booked the accounting gain, and put it in the window like it was operating performance.
That has a name in the real world: window dressing. It's makeup. It's the Breaking Bad of the balance sheet — you turn a messy operation into a clean narrative for anyone who doesn't read the footnotes.
The elephant in the bank lobby
CEO Georges Elhedery talked about "decisive action and swift execution." Beautiful. But when CNBC asked about job cuts, the answer was straight out of a politician's playbook during election season.
He said the bank wants to cut payroll costs by around 8%, but that there are no "specific headcount reduction targets."
Translation: yes, they're cutting people, but he won't say that number out loud because the union is listening.
According to Bloomberg, HSBC also plans to use the bonus cycle to push out lower-performing employees — especially in investment banking and wealth management. Managing directors included.
Is that management, or is it corporate housecleaning dressed up as meritocracy?
Could be both. Probably is.
Hang Seng: privatization or damage control?
On January 26, HSBC completed the privatization of Hang Seng Bank, delisting its shares from the Hong Kong Stock Exchange. The bank sold the narrative that it was a "better use of capital than share buybacks."
Maybe. But privatizing an asset amid rising geopolitical uncertainty in the China-Hong Kong axis could also be a way to pull public exposure from something that might become a liability. Fewer eyes, fewer questions.
Morningstar thinks the synergies will materialize "gradually over the medium term." Corporate-speak for: "we have no idea when, but it sounds good."
What does the smart investor do with this?
Nothing impulsive. But nothing naive either.
HSBC announced a return on tangible equity (RoTE) target of 17% or more between 2026 and 2028. Today it sits at 13.3%. The gap between where they are and where they're promising to go demands flawless execution in a macro environment that's anything but predictable.
Interest rates, geopolitical tension in Asia, regulation in Hong Kong, and a CEO still in "prove himself" mode. That's a lot of variables to bet on a PowerPoint speech.
Warren Buffett has a line that fits perfectly here: "Only when the tide goes out do you discover who's been swimming naked."
HSBC still has its trunks on — for now. But the tide hasn't really gone out yet.
Are you analyzing your portfolio results with that same level of scrutiny — or are you satisfied with just "beating the estimate" of your own mediocrity?
