Today, I am looking at why I believe HSBC Holdings (LSE: HSBA) (NYSE: HBC.US) is a solid stock selection poised to deposit fantastic returns.
The World’s Local Bank colossal global strength
HSBC sources more than nine-tenths of its profits from Asia-Pacific, a figure likely to head higher as profit from these regions continue to march skywards. In Hong Kong, HSBC saw pre-tax profit leap 30% in January-June to $4.21bn, and follows growth of 30% in the corresponding 2012 period. And in the rest of Asia-Pacific, the business printed a 36% improvement to $5.06bn — up from 34.3% in the first half of 2012.
While performance in the Middle East, Africa and Latin America is also rising steadily, improving business from the previously bombed-out regions of Europe is also giving the bank cause for cheer. The company swung from a heavy $667m pre-tax loss in January-June in 2012 to a profit of $2.77bn in the same period this year.
However, in HSBC’s other major established market, North America, profit growth decelerated sharply — this slowed to $666m in the first six months of 2013 from $3.35bn in the same period last year, although this was still a credible performance.
Strong operational diversity underpins group power
As well as laying claim to supreme geographical diversity, HSBC is experiencing galloping progress across all of its divisions and is not reliant upon strength in one or two key divisions to drive growth. Leading the way during January-June was its Global Banking and Markets arm, where strong demand from its Credit and Foreign Exchange customers helped push pre-tax profit a staggering 41% higher to $5.72bn.
Elsewhere, the firm’s Commercial Banking arm recorded a 29% increase in profit before tax, to $4.13bn, while profit of $3.27bn at its Retail Banking and Wealth Management division represented a 23% on-year rise.
Restructuring strategy continues to deliver the goods
On top of scintillating business volumes, HSBC’s extensive cost-cutting drive is also helping to boost earnings, and the bank reported a 13% decline in operating expenses during January-June to $18.4bn.
The company’s extensive disposals programme, initiated as part of the fallout of the 2008/2009 banking crisis, has been the predominant driver in helping to deliver a more streamlined and economical earnings generator.
HSBC rid itself of a further 11 non-core divisions in the first half of the year, taking the total number of units sold or shuttered to 54 in just over two years. HSBC has already met its $800m cost-cutting target for the whole of 2013, and the combination of further disposals and improvement in operational efficiencies still has legs to run.
