Let's look at the growth of Asian financial institutions. There is no better time than right now to start paying serious attention.
Here's why.
The Chinese financial sector recently opened under the provisions set with China's entry into the World Trade Organization. Major banks will jockey for prime positions in the Chinese market. They'll begin by establishing retail-banking outlets in major cities including Beijing, Shanghai, Guangzhou and Shenzhen.

The Chinese market looks extremely attractive for commercial bankers. Unlike Americans, who spend well beyond their means, the Chinese save. In fact, personal savings rates are estimated to be upward of 40% of an individual's annual income. That's great for a business dependent on low-cost funds for loans - one of a bank's most profitable businesses.

These banks are also primed to tap the mainland's massive market for insurance products and other renminbi services. (The renminbi is the currency of the People's Republic of China.)

The Oldest of Old School Ways of Making Money

There's no better mainstay for both creating and preserving wealth than owning a great growing bank. Most investors shy away from this sector for various reasons… The financial statements are hard to read, the products certainly don't arouse the excitement you feel when the management of your highflying Apple stock dramatically announces the launch of its latest GlactoPod.

But as famed value investor Christopher Browne points out: "Banks are the one growth stock I'd love to own… The average person views banks as stodgy, old economy relics… but what would we do without ATMs, debit cards or credit cards?"

And what banks have a chance to grow?

Think of it this way… Do you think people in China want to stow their money in a place called Bank of America? That's like asking an Iowa corn farmer to hand his assets over to the Bank of China.

The World's Greatest Bank…

A very wise man once said a good reputation is more valuable than money.
I would argue no other multi-national bank holds a higher reputation than HSBC (HBC:NYSE).
In banking… A good reputation is more valuable than money.
We're in the age of a new generation… an era when corporate misdeeds and reprobate CEOs have tarnished the very concept of the responsible corporate citizen… Yesterday's disgraces - the Internet stock bust, the Enron and WorldCom debacles, numerous instances of accounting fraud - barely began to fade away before they were replaced by a fresh set of scandals, including last year's disclosure that Hewlett-Packard had spied on its directors. And before we could put those skeletons to rest, backdating options took center stage. Now I'm afraid we're primed for some more unscrupulous activity with the most recent housing calamity.

You want to invest your hard-earned money in safety beyond a single-digit P/E ratio! I mean, what good is a company trading at six times earnings if the earnings are nothing more than a paper trail of one-time depreciation expenses or booked assets whose proof of solvency never required even a credit check or a Social Security number?
Great reputations are like great companies… They aren't built overnight. And great companies are where you want your money.
Now, it's no secret that many of us maintain a general distaste for large financial companies, especially the larger institutions. They're viewed as power-hungry, money-hoarding machines. They're the ones who own your house. They're the masters who sit in leather chairs behind large oak doors and pull the strings. And they've been doing it ever since man has desired to trade.

Well, as the saying goes… when you can't beat them… And you might as well join the best.

The Hong Kong Shanghai Banking Corp. (HSBC) is not only the world's most respected bank, it's also the self-proclaimed "world's local bank," truly reaping the rewards from continued global growth, having operations in roughly 76 countries.

HSBC possesses the traits we want in an elite global bank: It has a corporate culture that is obsessed with providing superior service, determined to cut unnecessary costs and focused on economic profits and total shareholder returns.

HSBC's competitive advantage stems from its unique geographic footprint, diversity of business and corporate culture. While the banking industry is rapidly consolidating worldwide, few global banks operate in all the areas that HSBC does, such as Hong Kong, the United Kingdom, the United States, Latin America and Asia.

This geographic spread enables the bank to offer cheaper and better service to multinational corporations operating in rapidly growing Asian and Latin American economies. The diversity has fetched the bank more than 120 million retail customers and 2.5 million business clients, giving it considerable scale advantages over competitors.

Nurturing the Emerging Markets
Credit card issuing and management, wealth management and insurance products will deliver a diverse, long-term income stream. The company's proud past of implementing these services isn't some fluff Madison Avenue marketing tool. It's like paying coach to fly first-class. There's not a bank in the world that comes close to matching the service, convenience and steadfast reliability that HSBC has to offer.

Analysts suggest that HSBC's largest asset is also, ironically, its largest risk… that risk being the bank's exposure to Hong Kong and China. It derives 15% of its operating profits from Hong Kong and has stakes ranging from 15-20% in three banks in China. Any macroeconomic or political turbulence in China or China's policies toward Hong Kong could affect HSBC's results and share price.

The other risk… the one that's tangibly hampered the share price as of late has been HSBC's exposure to the American subprime mortgage market. The U.S. problems caused HSBC's bad debts to jump by $2.4 billion, to $6.3 billion in the first half of 2007.

Despite facing legitimate exposure to one of our country's greatest periods of mortgage defaults, the company still posted a 13% growth in pretax profits. This success can be attributed primarily to its growing success in emerging markets. Earnings from the Asia-Pacific region alone were more than one-third higher than this time last year.
We also want to note that HSBC indicates that the problems in subprime mortgage lending here in the U.S. have been stabilized.
Subprime woes have hampered the bank's share price. Like all financial institutions, we never want to pay more than 2 times book. Right now, we can grab shares of HSBC for 1.74 times book. That's exactly what I believe we should do.

Buy HSBC (HBC:NYSE) up to $100 a share.

The Bank of the Future

We expect HSBC's success in both Southeast Asia and Latin America to continue. This exposure to the fastest-growing economies in the world should ensure growth well beyond other major financial institutions with names you're probably more familiar with.

Management has made it clear that it's willing to spend on acquisitions to accelerate growth in Asia. We wouldn't be surprised to see similar actions in places like the Middle East or Latin America.

The day of the small-town bank has come and gone. The future in banking will rest on international institutions that can successfully offer their customers global products at a local price. Brand recognition will play a major role in achieving this. And you'll be hard-pressed to find a more recognizable banking brand than HSBC.