Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at HSBC (LSE: HSBA) (NYSE: HBC.US)
What is the sustainable competitive advantage?
In a highly competitive industry such as banking, reputation and size are key in establishing a competitive advantage.
So, as the world’s fourth biggest bank with total assets of $2.69 trillion, HSBC has a huge lead over the majority of its peers.
What’s more, HSBC’s reputation is bolstered by the fact that it was one of the only European and American banks not to receive a bail-out during 2008. In addition, the company continued to hand out a dividend to investors throughout the financial crisis, unlike many of its peers.
Having said that, the bank’s name has been tarnished recently after a series of scandals involving illegal transactions and product mis-selling. However, so far, the fall-out from this misconduct has been limited.
Still, out of the world’s ten largest banks by asset value, HSBC has the second highest Tier 1 capital ratio of 14.5%, during 2012 this ratio peaked at 18.1%.
Company’s long-term outlook?
With such a large asset base, operations within 85 countries around the world and a reputation stretching back nearly 150 years, it is unlikely that HSBC will see a threat to its dominance any time soon.
Moreover, with one of the best Tier 1 capital ratios in the world, it is unlikely that HSBC will come under the scrutiny of regulators and be forced to sell-off assets like many of its peers.
What’s more, the key reason that the bank was able to ride out the global financial crisis was its global operations. In particular, HSBC was able to use profits from its emerging market operations to bolster flagging operations within Europe. This diversification should allow the company to remain profitable for many years to come.
HSBC is also highly active in Africa, which is widely considered to be the next emerging market and is already experiencing rapid growth.
Foolish summary
All in all, HSBC’s size, global exposure and resilience throughout the global credit crisis lead me to conclude that the company is a good share to buy and forget for the long term.
So overall, I rate HSBC as a good share to buy and forget.
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In the meantime, please stay tuned for my next FTSE 100 verdict
> Rupert does not own any share mentioned in this article.
