Investment View: StanChart and HSBC are still Asian gold dust
StanChart sailed through the crisis but that doesn’t mean it will always find it easy
It might seem as though the streets of Asia are paved with gold, but getting it into your pockets isn't always so easy. It helps to know the markets – they're all very different – and have access to the right connections. Having deep roots in the region and a history also comes in handy. Which is why HSBC and Standard Chartered have been so successful out there.
The latter has British management, a London listing and HQ. But that's about as far as it goes. It seems as though the former has been in the region for ever. The initials are culled from its old name: The Hong Kong & Shanghai Banking Corporation.
Neither bank got into serious trouble during the financial crisis (although HSBC did issue two profit warnings thanks to its United States subprime home loans business) but both have run into difficulties recently, thanks to their operations in the Americas.
Big fines, public shaming, and probation have somewhat tarnished the prestige both once enjoyed. But leaving aside the moral arguments (the bonuses they pay to top executives are unconscionable and not in shareholders' interests, despite what they claim) they still work as investments.
StanChart is a simpler business. While the US fine revealed that the bank was in no way free of the cancerous culture that has infected the entire industry, it is still one of the world's better-run banks.
I was fortunate enough to take a tour of the Malaysian operations a few years back. What is notable is the number of bright people from more-thuggish institutions who found a haven in StanChart, to the bank's great benefit. Even through the financial crisis it was still producing record profits. There's been more of the same this year, and a plan to make Africa the next big earner, which, given the way the continent's economy has started to motor, makes sense.
There was some bitching about the cost of new rules this week – so what. Safer banks are in everyone's interest and just because StanChart sailed through the most recent crisis doesn't mean it will always find the going easy.
But profits were up 1 per cent (in line with forecasts) bonuses were down 7 per cent (good, but not enough) and the dividend is up 10.5 per cent (good, should be more if bonuses were lower: shareholders don't risk their money so bankers who don't can get rich).
On 2 March last year I said buy with the shares a shade above £16, despite the chunky premium the bank enjoyed at the time over rivals. Since then the ride hasn't been free of bumps. But the shares, at 1,784p yesterday, are still well ahead. That said, they don't appear to be overpriced, trading on just under 12 times this year's earnings forecasts while yielding 3.3 per cent. Keep buying.
As for HSBC, strategically it is clearly on the right track. Selling 47 businesses with a couple of small disposals to go, makes sense. Flag planting might allow you to boast of being "the world's local bank" but (as the Mexican business proves) having a branch in every country under the sun can get you into trouble. Big problems can emerge from even quite small businesses. The model being constructed under its chief executive Stuart Gulliver will be a more streamlined bank, with a presence in most of the world's fastest-growing economies, enabling it to capture trade flows from East to West.
This year's results were less than stellar. The company made money, which is good in a sector where the priority still appears to be bonuses first, shareholders a distant second and customers a long way third, but it wasn't as good as had been expected. Underlying profits, stripping out movements in the price of the bank's own debt, were up $2.5bn (£1.7bn) to $16.4bn and the total divi was up 11 per cent.
But, as the broker Charles Stanley noted, HSBC has an awful lot of work to do to restore a brand that was badly tarnished by the money-laundering and sanctions-busting fine.
To my mind, the fact that management showed zero contrition with regard to their bonuses doesn't help overly much.
I mentioned HSBC in passing when looking at the potential Libor liabilities that could arise from civil actions (HSBC probably won't be badly hurt). The shares are currently 718.2p and, at about 11 times this year's earnings with a yield above 4 per cent, if you can stomach HSBC's hubris they are worth holding, even after rising through most of the past six months.
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