HSBC ( HBC , quote ) reported its half-year earnings today in Hong Kong, beating analysts estimates thanks to a number of asset sales.
[caption align="alignright" caption="HSBC has shifted its focus to emerging markets"] [/caption]
In anticipation of the company's earnings, HSBC and other banking stocks led equities on the Hang Seng benchmark index significantly higher in Monday trading. Stocks in the Pearl River Delta's most important market were also buoyed by rumors of increased stimulus from the United States to boost the country's economy.
HSBC reported earnings after hours and the banking firm beat consensus estimates. The company said profits rose 10% year-over-year as a result of lucrative asset sales. Profit before taxes increased to $12.7 billion from $11.5 billion; analysts had estimated the bank would report profits of $12.36 billion.
Over the past year, the London-based bank has focused on selling assets in developed markets in order to place more focus on emerging market growth. In fact, since Stuart Gulliver took over the firm in 2011, the company has engaged in more than 28 asset sales in order to recalibrate the company's focus. Considering the rate at which emerging economies are expanding compared to developed ones, this could be a lucrative long-term strategy for HSBC.
Although business does appear to be booming for HSBC, there remains one major impediment for American investors considering going long the stock. Because of allegations that HSBC had illicit dealings with nefarious organizations such as drug cartels and terrorist fronts, it remains to be seen what sort of penalty the firm faces in the United States. HSBC has set aside $2 billion to pay for any potential sanctions levied against the company by American authorities.
As a result of these regulatory issues, investors face an intriguing decision when evaluating HSBC's stock. At only six times forward earnings, the stock is definitely cheap. However, the firm could face steep penalties that could drive the stock even lower.