MENU

10 Reasons Why Q3 Results From HSBC Holdings Plc Confirm My Buy Case

HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) shares have fallen by more than 10% from their May peak, leaving the UK’s biggest bank up by just 6% this year, compared to the FTSE 100‘s 13% gain.

For me, however, this is good news, as I believe HSBC remains a strong buy, and intend to increase my holding — a decision that was confirmed by last week’s third-quarter results.

Costs down…

Bad debt charges fell by 27% from £6.5bn in Q3 2012 to just £4.7bn. HSBC also reduced its cost-efficiency ratio — which measures a bank’s costs as a percentage of its revenue — from 61.2% during the first nine months of last year, to just 56.6% during the same period this year.

HSBC says that it has achieved $4.5bn of sustainable savings across its business so far this year, exceeding its full-year target. The bank’s operating expenses fell by 4% during the third quarter, compared to the same period in 2012.

…Profits up

HSBC’s reported pre-tax profits for the third quarter were $4.5bn, a 30% increase on the same period last year. Revenue was broadly unchanged on the third quarter of 2012, but the bank’s return on equity, a key measure of profitability, rose from 8.9% to 10.4% on an annualised basis, during the first nine months of this year.

HSBC also logged a $1.1bn profit on the sale of its operations in Panama during the third quarter, delivering a profitable exit from a troublesome market.

13% dividend growth

HSBC’s dividend policy is for three equal quarterly payments, followed by a variable fourth-quarter payout.

This year’s quarterly dividend has been $0.10, which represents an 11% increase on last year’s $0.09 payout. If analysts’ consensus forecasts are correct, and the bank’s fourth-quarter payout is $0.21, then shareholders like me will have enjoyed an inflation-busting 13% dividend hike in 2013.

Rock-solid balance sheet

HSBC’s core tier 1 capital ratio — the standard measure of banks’ ability to withstand financial shocks — rose to 13.3% during the third quarter, from 12.7% at the end of June. In comparison, Barclays’ core tier 1 ratio is just 11.3%, Royal Bank of Scotland clocks in at 11.6%, and Standard Chartered‘s is 11.4%.

HSBC’s cash balance also continued to rise during the last quarter, reaching an impressive $170bn — up from $148bn at the end of June, and from a mere $63.5bn at the end of 2010. 

HSBC remains a strong buy

Although HSBC has played its part in some of the banking scandals of the last few years, I believe its size, profitability and major presence in Asia continue to make it an appealing buy, as does its 4.6% prospective yield.

Despite this, HSBC didn't make the cut when the Motley Fool's team of analysts selected their top five FTSE 100 retirement shares.

The stocks chosen by the team all have the potential to deliver market-beating long-term growth, and I would strongly recommend you click here to download your free copy and take a closer look.

> Roland owns shares in HSBC Holdings but not in any of the other companies mentioned in this article. The Motley Fool owns shares in Standard Chartered.