Over the last few years some investors have become increasingly vocal at airing their concerns about the valuations being placed on Australian banks.
One of the main arguments against investing in Commonwealth Bank of Australia (ASX: CBA) and its peers is that compared with their overseas counterparts they look incredibly expensive.
There is certainly merit to the argument that more attractively priced banks are available on foreign exchanges, however, the counter argument is that the Aussie banks remain amongst the most profitable in the world and therefore are deserving of their premium rating.
HSBC – case in point
Hong Kong and Shanghai Banking Corporation (HSBC) is a well-known global banking giant. Unlike the Aussie banks which are reporting record profits, HSBC has been struggling. The 150-year-old bank was originally founded in Asia but is currently headquartered in Britain. Recently, it announced that it will slash its workforce by a staggering 50,000 and withdraw from Brazil and Turkey in an attempt to remove US$5 billion from its cost base over the next two years.
These are drastic measures and they're part of a plan to refocus HSBC's attention back on its roots in Asia and specifically the high growth region of the Pearl River Delta in China's Guangdong province.
The struggles confronting one of the world's most recognisable banking brands should act as a reminder to Australian investors that just as we saw during the global financial crisis, banks are not bulletproof.
The decision of HSBC to pivot its attention back towards Asia is also worth considering in the context of Australia and New Zealand Banking Group (ASX: ANZ) which is the Australian bank most advanced in its regional strategy.
The growth opportunities in Asia are of course undoubtedly appealing, however, they are not without their risks and heading into Asia is no sure-fire way to boost profits. In HSBC's favour is a long, deep-seated history of association with the region, a benefit that ANZ does not enjoy.
