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Why HSBC Holdings plc Will Be One Of 2013’s Winners

2013 has been a good year for the banks — the bad old “greed before all” days are supposedly behind them, the old top managers at most of them have been kicked out, and there’s a new liquidity regime in place that should at least reduce the chances of a repeat of the past few years.

Which one did best?

And although shares in HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) haven’t had as good a year as the two bailed-out UK banks — Lloyds Banking Group shares have doubled and Royal Bank of Scotland Group has gained 35%, against HSBC’s 11% rise to 680p — HSBC hasn’t had to recover from anything like the same depths.

In fact, if you’d bought shares in those three banks five years ago, you’d be 20% on HSBC now, which isn’t really that bad considering we’ve been through one of the worst few years for banks in most people’s memories. The other two? Well, despite Lloyds’ shares having doubled this year you’d still be 50% down on them, and your RBS shares would have lost more than 15%.

Scandal

HSBC has not escaped its share of controversy — earlier this year, chief executive Stuart Gulliver admitted that its structure had not been fit for purpose after a number of money-laundering allegations had earlier surfaced. The bank had been fined $1.9bn in 2012 for offences under the US Bank Secrecy Act, after allegedly allowing nearly $900m in drug money to pass through accounts and after failing to adequately monitor wire transfers worth $670bn.

But that fine was peanuts to a company that made a pre-tax profit of $20.6bn in 2012 — it was, in fact, less than five weeks’ profit. And other than a blip in the crunch year of 2009, HSBC has been recording ever-rising profits, which is a far cry from the eye-watering losses recorded by, especially, RBS.

This year

Performance has been strong this year, too, with reported first-half pre-tax profit up 10% to $14.1bn (although the underlying figure was up 47% to $13.1bn, once exceptionals are excluded) and that brought in a 20% rise in earnings per share to 54 cents. As far as liquidity goes, HSBC achieved a core tier 1 capital ratio of 12.7% at the halfway stage, up from 2012’s year-end figure of 12.3%. And that’s good.

What about dividends? Well, even in 2009 HSBC provided a dividend yield of 3% which is around the FTSE average, and shareholders enjoyed a 4.3% total yield in 2012. So far this year we’ve seen 19p per share in three interim installments, with analysts’ forecasts suggesting 32.6p per share for the full year — and that would yield 4.8% on a 680p share price.

It’s a winner

So we have a bank that was not as overstretched as the others, arguably not quite as allegedly naughty as some, and it kept the profits coming in and the cash flowing into shareholders’ pockets.

And after all that the shares are on a forward P/E of only 11 for 2013 full-year forecasts, falling to a little over 10 based on 2014 expectations, and that’s significantly lower than the FTSE average of 14.

So yes, HSBC shareholders certainly look like they’re among 2013’s winners.

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> Alan does not own any shares mentioned in this article.