HSBC Holdings PLC HSBA

We see much to admire about HSBC, although the global bank has been humbled by the credit crisis and evidence of weak operational controls. Its massive footprint allows it to offer services to global customers that few financial institutions can match. We think HSBC's focus on reach in recent years has led it to make disastrous acquisitions (like Household in the U.S.) and to build nonstrategic operations, and we're pleased that its reorganization, begun in 2011, is aimed at refocusing the bank on its strengths and the sources of its narrow moat--its ability to provide global financial services to corporate customers and its footprint in fast-growing markets. We think the streamlined strategy will free up capital to fuel growth in emerging markets, especially since the bank is almost fully Basel III compliant, while helping management to cut some of the fat out of its operations.