Dear Mr. Berko:
HSBC Holdings PLC was fined $1.92 billion recently for helping terrorist nations launder trillions of dollars, and its stock actually appreciated after the announcement. The increase in stock price certainly impressed me. So do you think 200 shares of HSBC would be a good long-term investment? I would also like to invest $10,000 in a big drug company because I think that type of company will be among the biggest beneficiaries under Obamacare. Which drug company would you recommend?
T.R., Vancouver, Wash.
HSBC (HBC-$55.65), formerly the Hongkong and Shanghai Banking Corp., was established in 1865 to encourage the growing trade between Europe and China. Today HSBC has a massive footprint of 7,000 branches in 85 countries. It is the world’s largest “deposit taker,” with $1.4 trillion in customer deposits, 102 million retail customers, 3.1 million corporate customers and $79 billion in revenues. In 2011, HSBC earned $16 billion, and it’s estimated that $2.7 billion of its 2011 earnings derived from helping the South American and Mexican drug cartels, Iran, Sudan, Libya and various heads of state receive, transfer and launder money. Documentation demonstrates that between 2006 and 2011, management facilitated more than $200 trillion in transactions for terrorist nations and drug cartels, earning more than $100 billion in the process. Seeing as little of this $100 billion appeared on HSBC’s income statement, that niggardly $1.92 billion fine is basically confetti. Not a single executive was prosecuted or lost a job.
HSBC’s stock trades close to its high of two years ago, and in the coming few years, it may be headed to the $90s, where it was trading before the market collapsed. HSBC probably will continue to launder trillions, but management will be more circumspect. Therefore, the Street expects 2012 earnings to come in at $4.90 per share and 2013 earnings to come in at $6.95, with good dividend increases in both years. HSBC’s strong presence in Hong Kong and China makes it the bank of choice for multinational companies that trade with China. HSBC’s exposure to the world’s fastest-growing economies ensures robust growth in revenues and earnings. Its geographical diversification stabilizes earnings, and its overly generous management incentive package strongly emphasizes maximum profits and shareholder gains, all of which endorses HSBC stock ownership. Because HSBC has numerous friends in Congress, management is immune to prosecution, just like the goodfellas who run Wall Street’s financial mafia. Thanks to Congress, the world is HSBC’s urinal.