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.
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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).
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
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
Credit Suisse Group
Canadian Imperial Bank of Commerce
). All these companies carry a Zacks Rank #2 (Buy).