These 3 Banks Are Back on Track
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With an improving housing sector, a rising employment rate, and more flexible monetary provisions, the banking sector has experienced some relief in 2013. Yet future topline growth will face some challenge due to lower interest margins and slow loan growth rates. Banks are countering this sluggishness with better expense control and more favorable lending for its customers. Let's take a look at 3 banks and their plans to sustain growth.
HSBC Holdings (NYSE: HBC) is the biggest hedge fund administrator in the Asia-Pacific region. It offers services like trade settlements and cash and securities lending to hedge funds. It's also planning to double its prime brokerage business in the Asia-Pacific region. HSBC has seven out of the 10 biggest hedge fund managers in China under its prime brokerage unit, which helps it compete in a very large market.
HSBC recently sold two-year notes for $81.7 million at 2.25% annually in Singapore, its first Yuan-dominated bond. HSBC is predicting that the Singapore debt market will reach $58 billion in 2013. It appears as though it just found a lucrative opportunity.
HSBC has hit its yearly cost reduction target of $3.5 billion, which is one of the reasons for a profit of $8.1 billion in the first quarter of 2013. It also plans to save an additional $3 billion over the next three years. HSBC has slashed around 40,000 jobs and is planning to cut 30,000 more in 2013.
After Shell, HSBC is the second largest dividend payer on the FTSE 100 market, having paid $4.4 billion in 2012. Further, it has divested more than 50 mediocre businesses since 2011. In February, HSBC sold its stake in Shenzen Ping, a Chinese insurance company, for $7.4 billion, which generated a profit of $2.6 billion. Its also planning to sell its unit in Panama for $2.1 billion in 2013. The profit from these divestitures is estimated to help HSBC with any future capital needs.
Going global again
Deutsche Bank (NYSE: DB) will be positively impacted by the implementation of the Liikanen proposal in Europe, which dominates the global banking system. The proposal will divide commercial banking from investment banking, where both will function as separate entities. It will help Deutsche Bank, which owns a dominant position in the European market, to generate extra revenue of $1.3 billion per year starting in 2012.
Its Private and Business Client Servicing segment is another vital line of business for Deutsche Bank. Gains from deposit fees and other financial services were $4.2 billion, which is about a 1% return on $420 billion in assets. The bank earns 4% of total assets, from its global transaction banking business, which reported $402 million on assets of $130 billion.
To strengthen its client base in the global transaction banking business, Deutsche Bank is attempting to expand its business in the Asia-Pacific region, specifically in India and China. Recently it increased its stake in China's Hua Xia Bank to 19.99%, which will make it the second largest shareholder.
Home lending and asset management
JPMorgan Chase (NYSE: JPM) reported net income of $6.5 billion for the first quarter of 2013, which was up $800 million sequentially. The bank experienced a rise in income due to an increase in mortgage lending. Federal programs helped to boost its lending as customers were motivated to apply for lower rates.
Its asset management segment is a global leader. As of March, it manages approximately $1.9 trillion assets and owns around $2.1 trillion. This business reported net income of $487 million in the first quarter of 2013, which is a 26% year over year increase. This increase was driven by more cash flooding the equity markets.
JPMorgan is also taking initiatives to gain market share by providing investment knowledge to people through its “Guide to the Markets'' program. It also launched an iPad application, which sort of acts like an interactive platform, for advisors to share information with clients.
With expansion of its footprint in the Asia-Pacific region and cost-cutting targets, HSBC will be able to cash in on opportunities. Due to regulatory changes in banking functions and profitable performance of its business segments, Deutsche Bank should grow its top line for years to come. JPMorgan has a dominant presence in the mortgage and equity markets and appears poised to pop. All three banks seem like solid bets for the long term investor.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!