Last week, respected fund manager and City of London legend Neil Woodford revealed that hehas sold all his shares inHSBC(LSE: HSBA) (NYSE: HSBC.US) over fears that banks face unquantifiable fines from regulators. However, while Woodfords fears regarding fines are well founded, there are still many reasons why HSBC remains and attractive investment.
1. Long-term growth
HSBC really is the worlds local bank and for this reason it is well placed to grow over the next few decades. The group is one of the few banks in the world that has such as global and diverse footprint, active within 74 countries around the world, giving it a unique advantage.
And HSBC has built on this global footprint by integrating operations. For example, HSBC boasts a global branch locator on its website, alongside financial planning tools. Further to its wide geographic footprint, HSBC is one of the few global banks that can negotiate international trade deals internally without getting involved with third parties.
This integrated global presence is why HSBC is set to grow no matter what regulators throw at the bank.HSBCs management and the banks analysts believe that by 2050, the worlds top 30 economies those in Asia-Pacific, Latin America, the Middle East and Africa will have grown four-fold. HSBC will be able to ride this growth.
2. Capital buffer
HSBCscore tier 1 capital ratio the banks financial cushion is one of the best in the industry, standing at 11.3%, up from 10.8% as reported at the end of 2013.
This capital position is only likely to get stronger. Indeed, HSBC generated profits of $12.3bn during the first half of this year, making HSBC one of the worlds most profitable businesses on a dollar basis.
Whats more, HSBCs management has been reducing the banks exposure to risky assets over the past few years, with questionable assets being sold. These assets include a portfolio of US mortgage securities and branches based within high-risk economies, such as the Middle East.
3. Shareholder returns
Dividends can make or break a portfolio and HSBCs dividend yield of 4.6% at current levels cannot be turned down. Whats more, City analysts believe that the bank will support a dividend yield of 4.8% next yearand then 5.3% the year after.
However, one of the reasons that Woodford sold his holding in HSBC was due to concerns over the banks dividend payout. The fund manager believes that fine inflation will dent the amount of cash HSBC has available for dividend payouts.
But HSBCs dividend is covered twice by earnings per share, and the banks impressive capital cushion means that, for the time being at least, HSBC has more than enough cash to cover the payout.
The bottom line
Overall, HSBC has many attractive qualities. Theres no need to blindly follow Woodford and sell your holding. Indeed, you should always conduct your own research before making a decision tosell, or hold.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
