by Selena Li and Lawrence White

HONG KONG/LONDON (Reuters) – HSBC Holdings reported a 14% drop in third-quarter pre-tax profit on Tuesday, weighed down by a $1.1 billion (€943.23 million) provision after losing part of its appeal in a trial linked to Bernard Madoff’s Ponzi scheme, the biggest fraud in history.

The bank, however, raised its revenue forecast for the year, reflecting the view that rate cuts in key markets such as Hong Kong and Britain will be slower than initially expected.

HSBC now expects to make $43 billion in net interest revenue in 2025, up from around $42 billion previously anticipated.

“The attention with which we implement our strategy is reflected in our performance this quarter, despite legal provisions linked to historical matters,” CEO Georges Elhedery said in a statement.

HSBC reported pre-tax profit of $7.3 billion for the third quarter. Before the surprise announcement of the provision on Monday, analysts had expected pre-tax profit of $7.66 billion, according to a consensus compiled by the bank.

In addition to this provision, the bank also recorded $300 million in additional legal charges related to historical transaction activity within HSBC Bank plc.

HEDDERED BY ASSET IMPAIRMENT

HSBC also raised its return on equity target, now placing it at a level of around 15% or more, whereas it previously estimated it at around 15%.

The results show that Georges Elhedery’s efforts to improve earnings continue to be hampered by significant litigation, ongoing restructuring and charges related to the real estate sector.

In recent quarters, HSBC has taken $5 billion in writedowns on its Chinese bank portfolio and losses from deteriorating commercial property loans in Hong Kong have mounted.

The deterioration of Hong Kong’s commercial property market has prompted HSBC to improve its credit loss model, the bank said in its statement.

In the first nine months of the year, HSBC recorded a $900 million increase in non-performing loan charges compared to the same period last year, with two-thirds of this amount coming from exposure to Hong Kong real estate.

The losses reflect “higher provisions for new defaulted exposures, the impact of an oversupply of non-residential properties which placed continued downward pressure on rental values ​​and capital values,” HSBC said.

(Writing by Selena Li in Hong Kong and Lawrence White in London; Etienne Breban; editing by Kate Entringer)

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