Today I am looking at why I consider HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) to be a capital banking asset.
A reassuring balance sheet
HSBC, along with the rest of its industry peers, is taking the hatchet to its asset base in order to build its capital pile in line with regulatory requirements. Allied with significant cost-cutting elsewhere, these measures have made HSBC one of the best-capitalised institutions in the banking space, and the bank’s core tier 1 capital ratio registered at a healthy 10.8% as of the end of March.
One should not underestimate the vast amounts of cash that the banking goliath’s pan-global operations continue to throw up — indeed, cash and cash equivalents held on HSBC’s books clocked in at a mind-shredding £186bn at the start of the year.
Divestments
This position has been boosted by a constant stream of non-core asset divestments in recent years, a process which HSBC is stepping up. Indeed, the company announced just last week plans to offload the British pensions business of its HSBC Life subsidiary to Swiss Re, although it will retain management of the arm’s assets, which are valued at some £4.2bn.
The move follows the sale of its Pakistan banking operations to Meezan Bank back in May, as well as its Woolworths white label credit card business in Australia to Macquarie Bank. The company also sold off its Indian banking business to Doha Bank in April.
The result of regulatory changes caused by the European Union’s Capital Requirements Directive IV (or CRV IV), implemented at the start of the year, pushed the firm’s capital ratio 0.1% lower from the start of the year. But with asset sales set to continue rolling, investors should have confidence that ‘The World’s Local Bank‘ capital holdings should keep surging higher well into the future.
Lucrative dividends
And a healthy cash situation means that the company should continue to shell out lucrative dividend payments to its shareholders. The firm is expected to produce payouts of 53.1 US cents and 57.3 cents in 2014 and 2015 respectively, forecasts which produce stonking yields of 5.1% and 5.4%.
Boosted by its extensive exposure to emerging markets, particularly those of the Asia Pacific, I believe that HSBC’s cash situation should continue rattling higher in line with spectacular revenues growth.