Today I am looking at why I believe HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) may be considered a terrific share pick.
Here are two numbers that I think help make the case.
9.3
With fears over capital levels at the world’s biggest banks continuing to depress share prices across the sector, news last month that HSBC boasts the strongest balance sheet in Britain no doubt came as music to the ears of shareholders.
According to the European Banking Authority’s (EBA’s) stress tests, the institution sailed above the minimum core equity tier 1 (CET1) ratio of 5.5% under ‘adverse conditions’ with a reading of 9.3%. By comparison industry rivals Barclays, Lloyds and Royal Bank of Scotland lagged behind with figures of 7.1%, 6.2% and 5.7% respectively.
The business still has to face the scrutiny of the Bank of England next month, however, whose assessments factor in a much more sizeable slump in domestic house prices. But given HSBC’s relatively small 12% share of the UK mortgage market, The Old Lady of Threadneedle Street’s tests are unlikely to shock.
Given the uncertainty which continues to surround the state of the global economy, from slowdown in HSBC’s key emerging markets through to fears of worsening conditions in the eurozone, this capital buffer will assuage investor concerns over the robustness of the bank should financial conditions deteriorate.
4
And promisingly, HSBC continues to defy signs of macroeconomic slowdown in key regions to punch solid, if unspectacular, growth.
In particular, the firm saw underlying turnover maintain its positive momentum during June-September at its Commercial Banking division. Revenues at HSBC’s most profitable division advanced 4% in the year to date, to $12.3bn, and turnover edged 2% higher quarter-on-quarter to $4.2bn.
On top of this, The World’s Local Bank also saw activity at its Global Banking and Markets operations continue to pick during the third quarter, with revenues advancing 1% from April-June to $4.6bn.
Following the results, Barclays Capital noted that “this pace of growth is likely to continue, with management confident in the GDP outlook for the key geographies of the UK and China.” Collectively these two divisions account for more than 75% of pre-tax profit, so signs of rising strength in these places bodes well for future earnings growth, particularly once cyclical headwinds abate.