HSBC Profit Surge Fuels Calls for Bank Windfall Tax Ahead of Budget

HSBC reported a 32% surge in pre-tax profits to $9.6 billion in the third quarter, a performance that has reignited calls for a windfall tax on the banking sector. The financial institution also plans to return $1 billion to investors through a share buyback program.

These results arrive just before Chancellor John Healey is set to deliver his first Budget, where an increase in the bank surcharge from 3% to 8% is widely anticipated. Campaigners and trade unions argue that major banks can afford to contribute more to public funds, citing a series of profitable years driven by elevated interest rates. The Trade Union Congress (TUC) is advocating for the surcharge to be raised to 16%.

"These results make it blatantly obvious banks can afford to contribute more," said Paul Nowak, general secretary of the TUC. "It's not just HSBC. Barclays announced bumper profits last week too. And Britain's big four banks have made more than £200 billion in profit over the last five years."

The TUC believes that increased contributions from banks are necessary to support households and businesses facing economic challenges. "Working people have another cold, hard winter ahead. Households and businesses are going to need more support - and it's time for the Chancellor to make the banks pay a fairer share," Nowak added.

However, banking industry leaders have cautioned that such a tax could stifle investment and economic growth, potentially leading to higher mortgage rates for consumers. A spokesperson for HSBC, finance chief Pam Kaur, dismissed suggestions that the bank would move its headquarters from London due to the tax threat, stating, "That's just not on the table."

Banks' profits have been significantly boosted in recent years by higher interest rates, which have widened the net interest income—the difference between what banks pay on deposits and charge on loans. For HSBC UK, net interest income rose 6% year-on-year in the third quarter to $3.2 billion, contributing to the overall bank's $9.3 billion. HSBC's chief executive Georges Elhedery noted, "Our performance shows that in a more complex world clients continue to turn to us to navigate uncertainty and seize new opportunities."

While the overall group revenue saw a 5% increase to $18.6 billion, HSBC's wealth division reported flat revenue of $2.7 billion, a slowdown from the 15% and 23% growth seen in the first two quarters. This performance contributed to a 5% drop in HSBC's Hong Kong-listed shares.

Duncan Ferris, an analyst at Freetrade, commented on the potential impact of the increased surcharge. "If Chancellor John Healey does confirm the much-rumoured measure on Wednesday, the increased tax burden could increase the rarity of shareholder windfalls from the likes of HSBC," Ferris said. He also noted that HSBC might be more insulated from the tax compared to domestic competitors due to its substantial Asian business, as the rumoured surcharge reportedly applies only to UK profits.

Barclays also reported strong results last week, with a 12% rise in pre-tax profits to £2.3 billion for the three months ending September 30, boosted by trading volatility and interest rates. However, Barclays also announced plans to cut 5,000 jobs by the end of the year as part of a push towards artificial intelligence.

Concerns remain about how a higher bank tax might affect customers. Trade body UK Finance has warned that increased levies could be passed on through higher mortgage rates, less competitive loan offers, or tighter lending criteria. Savers could also see reduced interest rates on their accounts, diminishing real returns in an environment of rising inflation. Furthermore, investors in UK banks might face lower dividend payouts as institutions seek to cover the additional tax burden.