HSBC Holdings (HBC)

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See all Bulls Reasons Bulls: Reasons To Buy Globally diversified base of business 100% agree Globally diversified base of business HBC has a globally diversified base of business. It's very strong in the Asian markets where growth remains healthy. HBC has been mentioned repeatedly as one of the possible buyers for Lehman Brothers (LEH) although the speculative scope of the impact that might have on... read more View or Edit Reason 1 votes 100% agree See all Bears Reasons Bears: Reasons To Sell Lots of acquisitions without happy endings 0% agree Lots of acquisitions without happy endings HSBC has recently been on a buying spree, acquiring banks in South Africa, Argentina, and Australia. In 2003, HSBC also bought Household Finance, which was a market leader in credit card and home equity loans in the U.S. Subsequent to that acquisition, HSBC has had to close... read more View or Edit Reason 0 votes 0% agree Lots of exposure to turmoil in the credit markets 0% agree Lots of exposure to turmoil in the credit markets Foreclosures and delinquencies have surged in recent months, particularly among homeowners who took out high-risk mortgages. The distress has forced several mortgage lenders into bankruptcy and stoked anxiety that the problems are now spilling over into the broader economy.... read more View or Edit Reason 0 votes 0% agree Exposure to credit cards and the turmoil in consumer debt 0% agree Exposure to credit cards and the turmoil in consumer debt HBC is heavily exposed to credit card assets. In that light it is similar to Capital One Financial (COF), which recently slashed its earnings estimates by over 20% due to higher default rates and building losses. There seems to be some potential for a negative impact to... read more View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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HSBC Holdings, PLC (Symbol: HBC) is a United Kingdom-based banking and financial services organization. Its international network comprises over 10,000 branches in 82 countries and territories. The headquarters is in London. HSBC provides a full range of financial services to more than 125 million customers.

HSBC Holdings plc (or HSBC) is one of the largest banking and financial services firms in the world, with over $1.9 trillion in assets as of the end of 2006.

[edit] Business and Financials

Shares Outstanding: 11.8 billion Market Cap: HK $1.7 trillion

Operating through 10,000 offices in 82 countries and territories across the global, HSBC provides a wide range of financial services to individuals, corporations, and institutions. It is the largest bank in Hong Kong, a significant player in Asia, and one of United Kingdom's leading banks. HSBC traces its roots to 1865, the year it started its operations with Hong Kong and Shanghai Bank. Through a series of acquisitions, HSBC has transformed its business from its Hong Kong base to an operation whose activities are now dominated by Europe and North America. In 2003, HSBC acquired Household International, Inc. a leading US consumer finance company for $14.8 billion and the Brazilian banking assets of Lloyds TSB Group for $745 million. In 2002, HSBC bought Grupo Financiero Bital S.A. (now HSBC Mexico), the fifth largest banking group in Mexico. In 2000, HSBC purchased Credit Commercial de France (CCF), a major banking group in France, for $11 billion. This was preceded by the late 1999 acquisition of Republic New York Corporation (the Parent of Republic National Bank of New York) and its sister company Safra Republic Holdings for $11 billion. These entities were merged with HSBC Bank USA (formerly Marine Midland Bank, acquired in two steps in 1980 and 1987). In 1992, HSBC purchased U.K.-based Midland Bank (now called HSBC Bank plc), the fifth largest bank in the U.K.

Managing for growth, HSBC's strategic plan launched at the end of 2003, has two broad goals: (1) to be the world s leading financial services company and (2) grow total shareholder return by achieving strong earnings per share growth and efficiency. Earnings are well diversified geographically, with Europe contributing 32% of 2006 pretax profit, North America 33%, Hong Kong 23%, Asia Pacific 16%, and Latin America 8%. HSBC manages its operations through the following groups: Personal Financial Services (accounting for 42% of 2006 pretax profit) Commercial Banking (27%) Corporate, Investment Banking, and Markets (26%) and Private Banking (5%). HSBC s long-term ratings are AA- by S&P, Aa2 by Moody's, and AA by Fitch.

[edit] Trends and Forces

[edit] Structured Investment Vehicles or SIV's

HSBC was an early mover in bringing liabilities and assets that resided in off-balance sheet structured investment vehicles ("SIV's"). The HBC balance sheet was used in early 2008 to bring collection of off-balance sheet SIV's, or structured investment vehicles, onto the parent company's books. This allowed the bank to support those SIV's directly, rather than have a high-profile liquidation or 'credit event' that could have followed. Many analysts give the company high marks for that move, which many of the other banks like Citi and even Bear Stearns have subsequently followed. HBC is not subject to the same scrutiny as US-based banks, and this could, in our opinion, be a firewall behind which some credit detioriation may be happening that is unseen or appreciated fully in the ADR price. The purchase of Household Finance by HBC back in 2003 gave them a tremendous position in all of those US credit markets

[edit] Acquisition Spree

HSBC has recently been on a buying spree, acquiring banks in South Africa, Argentina, and Australia. In 2003, HSBC also bought Household Finance, which was a market leader in credit card and home equity loans in the U.S. Subsequent to that acquisition, HSBC has had to close the mortgage origination division of Household, and take several multi-billion dollar charges against earnings for the losses stemming from that acquisition.

[edit] Credit Crunch and Subprime Dilemma

Foreclosures and delinquencies have surged in recent months, particularly among homeowners who took out high-risk mortgages. The distress has forced several mortgage lenders into bankruptcy and stoked anxiety that the problems are now spilling over into the broader economy. As these impairments to value continue, banks are taking multi-billion dollar charges for their mortgage backed bonds, SIV’s and consumer (credit card related) debts. There is a potential for a significant negative impact to HBC’s earnings and / or equity value here from exactly those vehicles.

Moreover, HBC is also heavily exposed to credit card assets. In that light it is similar to [[Capital One Financial (COF)], which earlier this year slashed its earnings estimates by over 20% due to higher default rates and building losses.

[edit] References