HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) reported a 20% increase in first-half earnings per share, despite a 7% drop in revenue. Most of the improvement was the result of fewer provisions for bad loans and fewer fines paid to regulators.
Meanwhile, the bank continues to make progress in transitioning itself to the brave new world of global finance — 54 units have been shut down or sold and nearly 50,000 jobs have been cut in the two and a half years since CEO Stuart Gulliver started restructuring the business.
Despite fears about slowing growth in China and other emerging markets, HSBC’s global operations still appear strong as profits in Hong Kong and the rest of the Asian Pacific were up 12% and 16%, respectively.
Latin America was a different story, however, as worries about loan quality meant higher provisions — specifically in Brazil and Mexico — and lower profits.
With disposals expected to slow going forward the new and hopefully improved HSBC is coming into view. A stronger emphasis on investment banking in Hong Kong and China and taking advantage of the bank’s global network to build up its offerings for trade banking should position HSBC for success in the long run.
In the short term, though, slowing growth in emerging markets rests heavily on investors’ minds and HSBC will have to convince them that it can continue to grow even if its markets lose some of the momentum of recent years.
Trading on a price-to-book value multiple of 1.2 HSBC might look a bit expensive compared to some of the other London-listed banks but its global diversification justifies a premium. However, at these prices it is unlikely we’ll see HSBC provide Lloyds-like returns any time soon.
Near-term, HSBC is unlikely to wow investors, but it does appear to be making the right moves to capitalise on its presence in emerging markets which should provide stronger growth in the long term.
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> Neither Nate nor The Motley Fool own shares of HSBC Holdings.