HSBC Holdings plc (ADR) (HBC), Barclays PLC (ADR) (BCS), UBS AG (USA) (UBS): How to Play International Banking

HSBC Holdings plc (ADR) (NYSE:HBC) is a U.K. banking giant, and giant is no overstatement. The bank has assets of over $2.7 trillion and offices in over 80 countries. Compare this to Bank of America‘s $2.2 trillion and Citigroup‘s $1.8 trillion. However, despite being the second-largest bank in the world by assets, the bank isn’t invincible. HSBC tumbled some 5% last week on news that the bank could have to pay damages of nearly $1.6 billion to settle a U.S. lawsuit related to mortgage-backed securities.

Is the pullback an over reaction and offering investors a buying opportunity? Quite possibly. At the same time of the damages estimate, the bank announced that profits rose some 23% year-over-year for the first six months of 2013. Quite impressive, as the bank’s cost-cutting program takes hold. The bank is still looking to make cuts, planning to save $3 billion by 2016.

There is a lot of uncertainty over whether or not HSBC Holdings plc (ADR) (NYSE:HBC) will admit wrongdoing and exactly what the final damages will amount to, but HSBC Holdings plc (ADR) (NYSE:HBC) has a solid balance sheet, with a tier-1 ratio that was up to 12.7% in 1Q versus 12.3% at the end of 2012.

As a result of its top balance sheet, the bank pays one of the top dividends in the industry, yielding over 4.3%; the company never stopped paying a dividend throughout the financial crisis.

Fellow Britain

Barclays PLC (ADR) (NYSE:BCS) is another major international bank that’s based in the U.K. Barclays gets around 40% of income from the U.K., 13% from the EU, 26% from the Americas, 16% from the Middle East and Africa and 4% Asia. Going forward, Barclays PLC (ADR) (NYSE:BCS) plans to focus on the U.K. and U.S., moving away with from Asia and Europe.

And like many of the other major banks, cost savings will be the focus going forward. The bank plans to save some 1.7 billion British pounds ($2.6 billion) by 2015, compared to its total cost base of 18.5 billion British pounds in 2012. To do this, Barclays PLC (ADR) (NYSE:BCS) will cut 3,700 positions. One of the remaining bright spots for the bank includes its investment banking unit, and the bank plans to continue investing in that area.

Swiss 

UBS AG (USA) (NYSE:UBS) is a Swiss bank with offices in 50-some countries. The investment bank tends to focus on global wealth management, and is over 150 years old.

Like the other major European banks, UBS AG (USA) (NYSE:UBS) is facing pressures due to euro zone sovereign debt and banking issues. As far as savings, UBS is looking to save some 5.4 billion Swiss francs (over $5.8 billion) by 2015.

At the end of 1Q, the bank had strengthened its capital position. Its Basel III common equity tier-1 ratio was up to 10.1%, already surpassing the 2019 10% requirement. By the end of 2013, UBS AG (USA) (NYSE:UBS) expects to have a tier-1 ratio of 11.5% and 13% by 2014.