Stock in Focus: HSBC

While tighter banking regulations post-crisis will dampen HSBC's profits, the scale and reach that support the bank's economic moat will help the bank outearn its 12% cost of equity

Erin Davis 29 September, 2015 | 10:22AM
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HSBC’s narrow moat is built on its nearly unparalleled global network, whose geography covers 90% of global trade and capital flows, with approximately 40% of its revenue coming from firms operating in two or more markets and other institutional clients. We think this gives HSBC (HSBA) the reach and scale necessary to serve international corporate clients in a way few other firms can rival.

We’re cautiously optimistic about the opportunities that lie ahead in Asia

This reach has increasingly been a double-edged sword in recent years. The ongoing slowdown in Asia and Latin America is likely to cause revenues to dip and loan losses to rise. HSBC, as a global systemically important bank, must hold 250 basis points of additional capital relative to smaller peers.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
HSBC Holdings PLC434.80 GBX0.01Rating

About Author

Erin Davis  is a senior banking analyst for Morningstar.