The size and diversity of HSBC (LSE: HSBA)(NYSE: HBC.US) is a key strength. In the first half of the year, the Far East contributed nearly two-thirds of group profit. This balance may shift in coming years as European and North American markets recover.
HSBC does not have the same clout in investment banking as Barclays or Morgan Stanley. While this may have worked to the group’s benefit during the financial crisis, now that markets are picking up, HSBC could lose some ground to its rivals.
HSBC never had to ask for a taxpayer bailout during the financial crisis and has been relatively untouched by the LIBOR and PPI miselling schandals. The reputational damage suffered by Barclays, Lloyds and RBS gives HSBC an opportunity to win significant business in the UK market.
The UK government’s banking levy is charged on assets owned by the banks. However, with much of its assets overseas, HSBC’s charge seems disproportionate. If UK regulators continue their assault on the sector, HSBC may be forced to relocate.
Standard Chartered (LSE: STAN)(NASDAQOTH: SCBFF.US) is a great way to access high-growth markets. They key difference between Standard Chartered and the rest of the UK banks is Standard’s focus on emerging markets. In 2012, 42% of Standard Chartered’s profits came from Hong Kong, Singapore and Korea combined. 10% of group profits were generated in India. Just 4% of group profit was earned in Europe, the UK and the Americas combined.
The absence of a strong investment banking offering is particularly notable. As the economies served by the bank mature, it becomes increasing possible that Standard could begin to lose business to banks with a stronger reputation for providing investment banking services worldwide.
Many UK companies are enjoying strong growth in Africa. Standard Chartered recently reported 16% income growth and 10% profit growth in the continent. Of all the world’s major banks, Standard Chartered is probably the best-positioned to benefit from the economic growth that the continent is experiencing.
For years now, Standard Chartered has been reporting the kind of returns that other UK banks could only dream of. If the likes of HSBC and Barclays invest resources in Standard Chartered’s strongest markets, margins could suffer.
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> David owns shares in Barclays and RBS but none of the other companies mentioned. The Motley Fool owns shares in Standard Chartered.