Buy HSBC (HBC)

This bank got its clock cleaned in the U.S. mortgage crisis. HSBC (HBC) spent $15 billion in 2003 to buy Household International in order to enter the U.S. mortgage market. The timing of that deal was just right so that write downs were about the same as what HSBC had paid to acquire the company.  The math of that deal turned into paying $15 billion to buy $15 billion in losses.

But there are advantages to things going so terribly wrong. It you survive—and the bank did rebuild its capital by raising $17.7 billion through a stock offering in April—you have good reason to examine your strategy from top to bottom. In the case of HSBC that resulted in the bank’s decision to return to its Asian roots. HSBC CEO Michael Geoghegan has announced that he will be moving his office to Hong Kong from London. That looks likely to be the key that unlocks a stock offering in China for HSBC, making the bank one of the first non-Chinese companies to list and raise money on a Chinese exchange.

At the end of 2008 Hong Kong and the rest of Asia accounted for 26% of the bank’s assets. That percentage will climb as HSBC’s China business grows and as HSBC takes advantage of troubles at competitors to pick up Asian assets. HSBC has emerged as the front runner to buy the assets of troubled Royal Bank of Scotland (RBS) in China (13 branches), India (28 branches), and Malaysia.

With the Chinese economy set to return to 10% economic growth in 2010—how sustainable that is for the long term is another story—and with Chinese exports likely to return to growth next quarter (see my posts http://jubakpicks.com/2009/12/10/when-will-chinas-currency-strart-to-climb-against-the-dollar/ and http://jubakpicks.com/2009/12/14/chinas-economy-takes-another-step-toward-business-as-usual-and-thats-good-news-for-the-rest-of-the-world/ ), owning a bank that owns an increasing bit of Asia’s banking business seems like a good investment.

But buying HSBC isn’t without risk. Read more

Four winners in the banking sector–and my guess on when to buy them

The banking crisis is by no means over. But I think we can start putting together a list of winners.

When we will want to buy stock in these banks is another question.

What characterizes the four winners that I’m going to name in this post?

Two things.

 First, they’ve come through the crisis so far in better shape than their peers. Their balance sheets are strong enough so that they can think about investing in future opportunities rather than about ways to survive.

Second, they have very attractive, already identified, opportunities ahead of them and they’ve already taken concrete steps to begin exploiting those opportunities.

I’ve got four winners in mind. I’m sure others will emerge as the world’s banks gradually work through still huge portfolios of problem loans. But right now these banks look like the best bets to exploit the crisis. Read more