A global bank
Of the London-listed banks, HSBC (LSE: HSBA)(NYSE: HBC.US) has the most geographically diverse operations. In the first six months of this year, the majority of HSBC’s profits come from Hong Kong and the Asia Pacific region. Around one fifth of group profit was generated in Europe.
This diversity decreases the risks to shareholders. This is demonstrated in the company’s track record through the global financial crisis. While its peers reported enormous losses, HSBC remained profitable during the very worst.
Politicians are pressuring Lloyds Banking and RBS to focus on the UK market. I would be much happier with HSBC’s spread of business.
Fewer fines in the pipeline
Unlike Lloyds Banking, Barclays and RBS, HSBC has emerged from the LIBOR, Payment Protection Insurance and swap misselling scandals almost unscathed by comparison. While investors in RBS and Barclays in particular may fret over future fines, it is little concern to HSBC shareholders.
This means that there is a higher degree of visibility of HSBC’s future earnings. HSBC is simply a less speculative proposition.
Valuation
According to the consensus of analyst forecasts, HSBC will report earnings per share of $0.96 for the 2013 year. If the bank delivers this target, 2013 will be its most profitable year since 2007.
At today’s price of 698p, the shares are trading on a 2013 P/E of 11.8. That’s a considerable discount to the FTSE 100 average of 14.5.
HSBC is forecast to deliver a 14% dividend increase this year, pushing the payout to $0.52. At today’s price, that equates to a yield of 4.6%.
That puts HSBC among the 12 highest-yielding shares in the FTSE 100.
Verdict
Unlike my other bank holdings, HSBC is less likely to suffer from the whims of politicians or misconduct costs. The bank is also more diverse, which lowers the business risk. However, this safety comes at a price: HSBC shares trade at a significant premium to Barclays and Royal Bank of Scotland. However, the dividend yield and modest P/E mean that HSBC looks less expensive than most UK blue-chips. I will certainly be paying more attention to the stock in the future.
