Last week, respected fund manager and City of London legend Neil Woodford revealed that he has sold all his shares in HSBC (LSE: HSBA) (NYSE: HSBC.US) over fears that banks face “unquantifiable” fines from regulators. However, while Woodford’s fears regarding fines are well founded, there are still many reasons why HSBC remains and attractive investment.
1. Long-term growth 
HSBC really is “the world’s local bank” and for this reason it is well placed to grow over the next few decades. The group is one of the few banks in the world that has such as global and diverse footprint, active within 74 countries around the world, giving it a unique advantage.
And HSBC has built on this global footprint by integrating operations. For example, HSBC boasts a ‘global branch locator’ on its website, alongside financial planning tools. Further to its wide geographic footprint, HSBC is one of the few global banks that can negotiate international trade deals internally without getting involved with third parties.
This integrated global presence is why HSBC is set to grow no matter what regulators throw at the bank. HSBC’s management and the bank’s analysts believe that by 2050, the world’s top 30 economies — those in Asia-Pacific, Latin America, the Middle East and Africa — will have grown four-fold. HSBC will be able to ride this growth.
2. Capital buffer
HSBC’s core tier 1 capital ratio — the bank’s financial cushion — is one of the best in the industry, standing at 11.3%, up from 10.8% as reported at the end of 2013.
This capital position is only likely to get stronger. Indeed, HSBC generated profits of $12.3bn during the first half of this year, making HSBC one of the world’s most profitable businesses on a dollar basis.
What’s more, HSBC’s management has been reducing the bank’s exposure to risky assets over the past few years, with questionable assets being sold. These assets include a portfolio of US mortgage securities and branches based within high-risk economies, such as the Middle East.
3. Shareholder returns
Dividends can make or break a portfolio and HSBC’s dividend yield of 4.6% at current levels cannot be turned down. What’s more, City analysts believe that the bank will support a dividend yield of 4.8% next year and then 5.3% the year after.
However, one of the reasons that Woodford sold his holding in HSBC was due to concerns over the bank’s dividend payout. The fund manager believes that ‘fine inflation’ will dent the amount of cash HSBC has available for dividend payouts.
But HSBC’s dividend is covered twice by earnings per share, and the bank’s impressive capital cushion means that, for the time being at least, HSBC has more than enough cash to cover the payout.
The bottom line
Overall, HSBC has many attractive qualities. There’s no need to blindly follow Woodford and sell your holding. Indeed, you should always conduct your own research before making a decision to sell, or hold.
