The last thing on many investors' minds is getting mixed up with banks. And, on the whole, we can't say we blame the average Joe for wanting to avoid those same institutions whose freewheeling lending practices (and more!) brought Wall Street to the precipice a mere six months ago.
That said, it would also be a mistake to write off an entire industry for the mistakes of a few. There are plenty of stable and conservative lending institutions across America that are worthy of the trust of Joe Q. Investor. Equally so, there are opportunities abroad, where the excesses of America's financial elite were mostly avoided. In some cases, great advantages were gained from the crisis as it unfolded.
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Here we present several foreign financials - each available as an ADR on the NYSE - whose fundamentals are in tact and whose reputations you can bank on.
Refused British Bailout Funds
HSBC Holdings plc (NYSE:HBC) caused quite a stir in the U.K. earlier this year for publicly announcing that it would not be receiving a Government bailout. HSBC stock has nearly doubled in value in the last two months - along with much of the financial sector. The stock pays an annual dividend of 3.94% and has a current P/E multiple of only 17.24.
More significantly, HSBC Bank has consistently had one of the least expensive credit default swap (CDS) prices for any major bank or broker throughout this financial crisis. A CDS is essentially an insurance contract that measures the default risk of an institution or country. The lower the price, the more stable the outfit.
British world beater Barclays plc (NYSE:BCS) has recently seen unbelievable gains in its share price, rising an astounding 450% in a mere two months. Barclays has also committed to maintaining its shareholders' dividend. The yield currently stands at a very healthy 10.7% (as of May 15).
Italy's Banks: A Conservative Lending Business
From the United Kingdom we travel south to the Mediterranean, where an Italian ETF comprised mainly of financials offers investors an opportunity to participate in some of Europe's safest banks.
The MSCI Italy Index Fund (NYSE:EWI) holds approximately 40% financials along with a number of utility, energy and other Italian large caps, serving as a proxy for the broader Italian market. Italian banks are currently attractive because they were not exposed to subprime loans in the way many other European nations' banks were.
Italian banks engage in a far more traditional banking business than their continental counterparts, and therefore don't assume the risks of brokerages, insurance companies and other specialized financial institutions that require gains from underwriting and investments just to compete. The shares are currently yielding a very safe 5.49% annual dividend and have appreciated by over 60% in just the last eight weeks.
The Wrap
Banks are not all bad - and there are places where the local financial system is downright healthy and thriving. Look at banks abroad for some great investment opportunities. (Find out which catalysts can turn struggling stocks around in our related article Turnaround Stocks: U-Turn To High Returns.)
