HSBCWe decided to thoroughly research a sector. We chose banking as we did not have coverage in this area at the time. There were several contenders, but the final vote was between HSBC and The Royal Bank of Scotland.
COMPANY NEWS
December 10, 2003
HSBC aided by Asian recovery
HSBC, the UK's biggest bank, said yesterday that a recovery in Asian markets had boosted revenues during the third quarter of the year. The strong demand for consumer credit in its core Asian market and in the US was one of the reasons behind the revenue growth. The improved revenues helped to offset margin decline at HSBC's lending businesses. HSBC said credit quality was stable during the three-month period, with an improvement in Hong Kong, although it gave warning of provisions against "a small number" of Western European companies.
The Hong Kong economy has been recovering from the Sars outbreak in the first half of the year but as Sir John Bond, chairman, said recently, the effect of the virus on the economy and banking sector was not as bad as had been feared. The bank said that dealing profits in the third quarter were not as high as in the first two quarters. All the banks had bumper first halves in dealing because of the buoyant bond markets.HSBC, however, said that dealing profits were still higher than they were last year. The bank recently outlined a strategy to boost profits from its dealing activities by using proprietary trading, trading money from its own balance sheet rather than customers' funds. HSBC said in August that first-half pre-tax profit rose 21 per cent to $6.1 billion (£4 billion), helped by lower bad debt provisions. The bank is the third of Britain's "big four" to give a third-quarter trading statement. All three, HSBC, Royal Bank of Scotland and Barclays have benefited from booming UK consumer lending."It's a reasonably positive statement, as have been those from Barclays and Royal Bank," said Richard Pierson, a Framlington Investment Management fund manager. "They are all telling the same story - commercial lending is a little better, consumer credit quality is OK and with an upbeat outlook for 2004," he said.HSBC extends loans pilot
Guardian 20 September
Customers who are refused loans by HSBC might be transferred to its new subsidiary, Household International, if a pilot scheme in Cambridge is extended nationwide. Dave Schoenholz, chief operating officer of Household, said in August - when the pilot was started - that 20 applications for loans had been transferred to Household, which operates in the UK as HFC and Beneficial.
Household is known in the United States as a sub-prime lender which provides loans and credit to people who might be turned away by other financial firms. Mr Schoenholz saw scope for expanding Household's credit card business in Britain and also hinted at possible expansion in Japan and India. He was in the UK to convince analysts and investors of the strengths of Household, which was bought by HSBC earlier this year as part of a plan to expand in the US. The acquisition led to protests over the £22m pay deal for Household's chief executive, William Aldinger. Mr Schoenholz said he personally regarded the attacks on the pay deal as "blood sport".
Despite the rather more defensive nature of HSBC, the share price has still recovered by around 25% from its lows in mid-March. Again the first half figures came in some way above consensus estimates, with PBT up some 13%. However, despite this the bank currently trades at a rather lower premium to its UK peer group than its historic average. While we would argue that a premium is justified due to the truly global nature of the business, there is something of a question market over the group's underlying growth. Although one has to concede that they have been remarkably successful at making earnings enhancing acquisitions. Clearly this is not an ideal way of growing the company for the long term and we would want to see underlying growth picking up. However with the general situation in Asia looking promising, prospects for such organic growth over the longer term do, on balance, look sound.
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