HSBC: A worldwide star performer
Wednesday, 8 October 2008
Jon Menon
HSBC Holdings Plc Chairman Stephen Green kept to his schedule the night Europe fell into the worst banking crisis since the Great Depression.
On Sunday, Sept. 28, as governments in London and Brussels were scrambling to find anyone willing to assist the bailouts of U.K. mortgage lender Bradford & Bingley Plc and Belgium's biggest financial-services firm, Fortis, Green was far away in Singapore. He went to the races that night and watched Fernando Alonso win the Grand Prix.
It's not that London-based HSBC, Europe's largest bank by market value, is immune to the credit crisis. It became the world's No. 1 subprime lender after purchasing Household International in the U.S. in 2003, and has set aside about $38 billion for bad loans since the start of 2006. What separates HSBC from the pack is its ability to hoard cash. It is one of the only European banks that takes in more in customer deposits than it loans out. With one of the highest capital ratios in Europe, HSBC probably will outperform peers as long as the crisis continues.
"You only need another shock, and there will be safe-haven buying of HSBC, with people rushing to the stock they think will weather the storm the best,'' said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers, which manages $21 billion, including HSBC shares. "HSBC will be the main stake for a lot of people.''
Better Than Gold: HSBC is up 10 per cent this year in London trading, the only gainer among Europe's 69 biggest banks, which are down an average 35 per cent this year. Throw in an annual dividend yield of 5.1 per cent, and it has done better than U.S. Treasuries, even gold.
The bank's London-traded shares declined 5 per cent to 881.25 pence as of 9:15 a.m., the same amount as the FTSE 100 Index.
"There's no need to change what they have been doing all year,'' said James Hutson, an analyst at Keefe, Bruyette & Woods Ltd. in London who has a "market perform'' rating on the stock. "It has served them well.''
HSBC operates in 85 countries and got more than three- quarters of its profit from emerging markets in Asia and Latin America in the first half of the year. Its presence in these faster-growth markets has mitigated losses in the U.S., where it was one of the first banks to take provisions on subprime-backed loans. HSBC's loan impairments will peak this year at about $14 billion, before declining to about $10 billion in 2009, estimates KBW's Hutson.
More Deposits: The bank has a loan-to-deposit ratio of 90 per cent, lending 90 cents for every dollar of deposits it receives. That compares with 129 per cent for Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank, and 124 per cent for Barclays Plc. HSBC's Tier 1 capital ratio, a measure of financial strength, is 8.8 per cent, compared with 8.6 per cent at RBS and 7.9 per cent at Barclays.
Deposits from consumers increased by $24.2 billion, or 5.0 per cent in the first half of the year as people moved their assets from investment products into the largest banks amid the market turmoil, HSBC said in August.
"Anecdotally, I would suspect HSBC has benefited from a perception of increased safety,'' said Ian Gordon, a London-based analyst at Exane BNP Paribas.
The bank, founded as Hongkong and Shanghai Bank Corp. in 1865, has avoided buying distressed banks this year. It would only consider acquisitions which fit into its strategy of expansion in emerging markets and won't buy assets just because they are cheap, Green, 59, said in August. HSBC is "highly unlikely'' to buy an investment bank, spokesman Patrick McGuinness said in an interview.
'Be Vigilant': Nor does the bank have an appetite for assets it considers overpriced. Sandy Flockhart, CEO of HSBC's Asian unit since July 2007, abandoned a $6.0 billion purchase of Korea Exchange Bank on Sept. 19 after failing to persuade owner Lone Star Funds, a Dallas-based investment firm, that the global crisis justified a price cut.
Flockhart, 56, who has worked at HSBC for 34 years and is a collector of classic cars, said in a Sept. 10 interview that the bank has "got to be vigilant'' about worsening credit quality.
"They are not going to do anything silly,'' said Chillingworth of Rathbone Brothers. "They are not going to surprise the market, which these days, is a good thing.''
Green's challenge is to maintain HSBC's edge. Intervention by central banks and governments in deposit and wholesale-funding markets "may start to undermine its funding advantage,'' KBW's Hutson wrote in a note to investors on Oct. 1. Investors who see an end to the credit crisis have already started to move on. Analysts in the past two months had six "buy'' ratings on the stock, seven "holds'' and eight "sells,'' according to data compiled by Bloomberg.
Shedding Jobs
"People are overpricing safety and security, and HSBC looks expensive,'' said Alan Beaney, head of investments at Principal Investment Management in Sevenoaks, England, who has been selling the shares. "HSBC can still lose money,'' he said. "The slowdown that is happening will affect the Far East.''
.......................................
By courtesy: Bloomberg
HSBC Holdings Plc Chairman Stephen Green kept to his schedule the night Europe fell into the worst banking crisis since the Great Depression.
On Sunday, Sept. 28, as governments in London and Brussels were scrambling to find anyone willing to assist the bailouts of U.K. mortgage lender Bradford & Bingley Plc and Belgium's biggest financial-services firm, Fortis, Green was far away in Singapore. He went to the races that night and watched Fernando Alonso win the Grand Prix.
It's not that London-based HSBC, Europe's largest bank by market value, is immune to the credit crisis. It became the world's No. 1 subprime lender after purchasing Household International in the U.S. in 2003, and has set aside about $38 billion for bad loans since the start of 2006. What separates HSBC from the pack is its ability to hoard cash. It is one of the only European banks that takes in more in customer deposits than it loans out. With one of the highest capital ratios in Europe, HSBC probably will outperform peers as long as the crisis continues.
"You only need another shock, and there will be safe-haven buying of HSBC, with people rushing to the stock they think will weather the storm the best,'' said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers, which manages $21 billion, including HSBC shares. "HSBC will be the main stake for a lot of people.''
Better Than Gold: HSBC is up 10 per cent this year in London trading, the only gainer among Europe's 69 biggest banks, which are down an average 35 per cent this year. Throw in an annual dividend yield of 5.1 per cent, and it has done better than U.S. Treasuries, even gold.
The bank's London-traded shares declined 5 per cent to 881.25 pence as of 9:15 a.m., the same amount as the FTSE 100 Index.
"There's no need to change what they have been doing all year,'' said James Hutson, an analyst at Keefe, Bruyette & Woods Ltd. in London who has a "market perform'' rating on the stock. "It has served them well.''
HSBC operates in 85 countries and got more than three- quarters of its profit from emerging markets in Asia and Latin America in the first half of the year. Its presence in these faster-growth markets has mitigated losses in the U.S., where it was one of the first banks to take provisions on subprime-backed loans. HSBC's loan impairments will peak this year at about $14 billion, before declining to about $10 billion in 2009, estimates KBW's Hutson.
More Deposits: The bank has a loan-to-deposit ratio of 90 per cent, lending 90 cents for every dollar of deposits it receives. That compares with 129 per cent for Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank, and 124 per cent for Barclays Plc. HSBC's Tier 1 capital ratio, a measure of financial strength, is 8.8 per cent, compared with 8.6 per cent at RBS and 7.9 per cent at Barclays.
Deposits from consumers increased by $24.2 billion, or 5.0 per cent in the first half of the year as people moved their assets from investment products into the largest banks amid the market turmoil, HSBC said in August.
"Anecdotally, I would suspect HSBC has benefited from a perception of increased safety,'' said Ian Gordon, a London-based analyst at Exane BNP Paribas.
The bank, founded as Hongkong and Shanghai Bank Corp. in 1865, has avoided buying distressed banks this year. It would only consider acquisitions which fit into its strategy of expansion in emerging markets and won't buy assets just because they are cheap, Green, 59, said in August. HSBC is "highly unlikely'' to buy an investment bank, spokesman Patrick McGuinness said in an interview.
'Be Vigilant': Nor does the bank have an appetite for assets it considers overpriced. Sandy Flockhart, CEO of HSBC's Asian unit since July 2007, abandoned a $6.0 billion purchase of Korea Exchange Bank on Sept. 19 after failing to persuade owner Lone Star Funds, a Dallas-based investment firm, that the global crisis justified a price cut.
Flockhart, 56, who has worked at HSBC for 34 years and is a collector of classic cars, said in a Sept. 10 interview that the bank has "got to be vigilant'' about worsening credit quality.
"They are not going to do anything silly,'' said Chillingworth of Rathbone Brothers. "They are not going to surprise the market, which these days, is a good thing.''
Green's challenge is to maintain HSBC's edge. Intervention by central banks and governments in deposit and wholesale-funding markets "may start to undermine its funding advantage,'' KBW's Hutson wrote in a note to investors on Oct. 1. Investors who see an end to the credit crisis have already started to move on. Analysts in the past two months had six "buy'' ratings on the stock, seven "holds'' and eight "sells,'' according to data compiled by Bloomberg.
Shedding Jobs
"People are overpricing safety and security, and HSBC looks expensive,'' said Alan Beaney, head of investments at Principal Investment Management in Sevenoaks, England, who has been selling the shares. "HSBC can still lose money,'' he said. "The slowdown that is happening will affect the Far East.''
.......................................
By courtesy: Bloomberg