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Analyst Blog

On Feb 1, 2013, we uplifted our long-term recommendation on HSBC Holdings plc to ‘Neutral’ from ‘Underperform’ based on the elimination of regulatory pressure related to its foreclosure mess. Yet, we remain skeptical about the huge financial impact of the penalty imposed owing to its involvement in the money laundering scandal.

Why the Upgrade?

In mid-Jan 2013, HSBC announced a foreclosure settlement deal with the Office of the Comptroller of the Currency (OCC) and other U.S. banking regulators. The settlement comes as a huge relief as it will enable the company to move away from the foreclosure mess and also lessen a massive regulatory overhang.

Following the deal announcement, the Zacks Consensus Estimate for 2012 has gone up 2.5% to $4.45 per share. Likewise, the Zacks Consensus Estimate for 2013 has moved north (up 4.3% to $5.05 per share). With the Zacks Consensus Estimates for both 2012 and 2013 going up, the company now has a Zacks Rank #3 (Hold).

Other Positives

HSBC’s restructuring program, started in 2011, remains on track to achieve targeted cost savings of $3.5 billion by the end of this year. The main intention of the initiative is to focus on the fast-growing and profitable markets along with improvement in overall efficiency.

Moreover, amidst an uncertain macro environment, HSBC remains strong with respect to its balance sheet and capital position. Also, continuously improving profitability ratios are a major positive at HSBC.

Other Major Foreign Banks to Consider

Besides HSBC, other foreign banks that are currently performing well include Credit Suisse Group (CS - Snapshot Report), Canadian Imperial Bank of Commerce (CM - Snapshot Report) and UBS AG (UBS - Analyst Report). All these companies carry a Zacks Rank #2 (Buy).

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