Earnings Drop 19% at HSBC Holdings
LONDON -- HSBC reported a 19% drop in earnings per share in 2012, as fines and struggling European operations marred a strong year in the bank's Asian operations. Despite these issues, the bank raised its dividend 10% for the year and plans to raise the first three dividends in 2013 11%.
As with most banks, it takes a little digging to find out what is going on with the business because they report a few different measures of profitability. Add in HSBC's global operations, and the story easily gets muddled.
In general, however, Hong Kong and the rest of Asia are doing rather well for the bank, while the U.S. and Europe are providing headaches -- and not just because the bank has run afoul of regulators surprisingly frequently of late. Despite these troubles, HSBC appears to be working its way through the troubled loans on its books in these two regions as provisions for bad loans were down 2.8 billion pounds, or almost 30%.
Like most European banks HSBC is in a rebuilding mode, but it seems to be making slightly better progress than its London-listed peers. It has shed 43 businesses in the past two years, generating 2.4 billion pounds in annual savings, and is investing heavily in its profitable Asian operations -- in fact, taking advantage, as many of the banks on the Continent pull back from the region to take care of domestic issues.
Importantly, HSBC appears to have a strong capital base ready to meet the stringent requirement increases expected go into force in coming years. Perhaps more importantly to investors is the fact that HSBC pays a dividend, which provides something close to the market average yield -- something its London-listed competitors cannot say.
A superior yield and geographic diversification are two reasons HSBC is trading at a premium to its book value -- roughly 1.2 times book value in fact -- while the likes of Barclays, Lloyds, and RBS all trade at discounts. However, this is still well below the multiples it traded at before the global financial crisis.
Investors need to ask themselves if they think HSBC can clean up its act in its developed markets and continue its success in emerging markets. If so, the shares could be attractive at today's prices.
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