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.
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.
For the long term, UBS AG (USA) (NYSE:UBS) is targeting a return on equity of 15% by 2015. In the interim, the bank expects ROE to be in the mid-single digits.
Bottom line
Barclays PLC (ADR) (NYSE:BCS) is the cheapest of the three on a price-to-book basis:
Part of Barclay’s sub-par P/E relates to the company’s presence in the U.K. But fellow UK bank HSBC Holdings plc (ADR) (NYSE:HBC) is performing well and appears to be generating returns on equity that well out pace its major peers:
It appears the pullback could be a solid buying opportunity to jump into one of the world’s leading banks, HSBC Holdings plc (ADR) (NYSE:HBC). Meanwhile, Barclays PLC (ADR) (NYSE:BCS) still has overhang related to the Europe struggles, and UBS AG (USA) (NYSE:UBS) trades inline with HSBC but has the lowest ROE.
The article How to Play International Banking originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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