Sell HSBC (HBC)

What to do about HSBC (HBC)?

It’s one of the great global franchises in banking with strength in exactly the part of the world—developing Asia—that you want in a bank stock over the next decade.

But over the last decade the bank lost its way, I’d argue.

The most obvious sign of that was the bank’s acquisition of Household International, the second largest U.S. subprime mortgage lender, for $15.5 billion in 2002 just in time to catch the U.S. mortgage crisis. By the time the bank had wound up that business losses just about equaled the original acquisition price. That deal wasn’t just a bit of bad timing though. It represented a curious decade-long quest to grow the bank in the world’s developed economies through acquisitions in France, the United States, and the United Kingdom. I’ve never heard a convincing argument from HSBC about why a bank with a leading position in the world’s fastest growing economies would decide to spend investors’ money expanding into the world’s slowest growing economies.

At the end of 2009 Europe accounted for 54% of assets and North America 20%, and emerging economies for just 17% (Hong Kong), 9% (the rest of Asia), and 5% (Latin America.)

Stuart Gulliver, the new CEO who took over in January, has announced a turnaround plan that would temper these global ambitions. But the strategy can’t by any means be called one of returning to the company’s roots in Asia.

Yes, the bank has targeted wealth management, particularly wealth management in Asia as a focus for growth. Gulliver expects to generate $5 billion in additional revenue from that sector.

And he did say, “We’ve tried to do everything, everywhere, always. We’re not going to do that anymore.”

But the bank hasn’t exactly decided to abandon its drive into developed economies. Read more

I’m suggesting that you think about lightening up on your exposure to financials. I don’t think you need to sell all your bank stocks, but the sector is showing signs of breaking down with another 10% drop in the cards. The sector showed a decent little bounce yesterday on JPMorgan Chase (JPM) CEO Jamie Dimon’s presentation at the company’s shareholder meeting, but it’s back on the downside again today.

The question is not just whether to sell, but also what to sell. Today I’m selling Citigroup (C) out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/

Another 10% correction in this sector isn’t so big a correction that investors can’t sit still through it. But what troubles me is the good possibility that some of the biggest names in this sector aren’t going much of anywhere very quickly when the correction is over. Read more

Update HSBC (HBC)

It’s by no means a done deal—nothing is in South Africa these days—but Nedbank, the South African bank majority owned by insurer Old Mutual (OML.L), is HSBC’s (HBC) deal to lose.

HSBC beat out rival Standard Chartered (SCBFF.PK) for the right to hammer out a formal offer to acquire South Africa’s fourth largest bank over the next two months. I think HSBC will pull it off. Old Mutual own 51% of Nedbank and the insurer is a motivated seller because the company is selling assets to pay down debt. HSBC won’t be able to gain 100% of Nedbank’s outstanding shares because South African law reserves a percentage of shares for black investors. But the company should be able to gain the 70% of shares that it has said will let it achieve it strategic goals.

And what are those goals?

First, but not foremost, HSBC wants to gain a foothold in Africa’s largest economy. 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

Update HSBC (HBC)

One half of HSBC’s (HBC) business is performing beautifully. Unfortunately, it’s not the part that I most want to own.

On August 3, HSBC reported second quarter earnings that showed that its investment banking and trading had doubled its pre-tax profit for the first half of 2009. For the division in charge of that business, the Global Banking and Markets group, that added up to a $6.3 billion pre-tax profit. That was enough to push the bank as a whole into the black with earnings of 21 cents a share.

In the rest of the business restructuring remained the order of the day. Read more