This article has been adapted from our sister site across the pond, Fool U.K.

Thanks to the credit crunch and global slowdown, 2009 was far from a good year for Britain's banks.

However, after a return to multi-billion-pound profits from Barclays, Lloyds Banking Group, and Royal Bank of Scotland, it was HSBC Holdings' (NYSE: HBC) turn to unveil its 2010 results.

HSBC hurtles ahead
Alas, judging by the reaction of HSBC's share price, down 4.5% to 679p as I write, investors were disappointed with the global mega-bank's performance last year.

This is largely because pre-tax profit of $19 billion was 5% below the consensus forecast from analysts of $20 billion. Even so, this was almost triple the $7.1 billion HSBC made in 2009.

What's more, investors should be encouraged by the news that HSBC made a profit in every division and region -- including North America -- for the first time since 2006. Here's how this $19 billion total breaks down:

USA: Up, up and away





Rest of Asia-Pacific




Hong Kong








Latin America




Middle East




North America




Profit before tax




As you can see, the biggest contribution to HSBC's surging profits was North America, where a turnaround in HSBC's subprime-hit lending division led to an $8.2 billion improvement in 2010.

Overall, HSBC's most profitable regions were Asia-Pacific, where profits leapt 41%, and its heartland of Hong Kong, where profits rose 13%. Europe saw the most disappointing profit growth, up a mere 7%.

Bad loans almost halve
The driver for HSBC's return to rude health came from lower loan impairment charges. Across HSBC's lending book, bad debts fell 47% to $14 billion, almost half the $26.4 billion written off in 2009.

As a result, the self-styled 'World's Local Bank' saw its earnings per share (EPS) rise 115% to $0.73, more than double the $0.34 recorded in 2009.

This enabled HSBC to boost its annual dividend to $0.36 per share (22.3p), or almost half of EPS. For 2011, HSBC is to raise its three quarterly interim dividends to $0.09 per share, and aims to pay out 40% to 60% of future attributable profits in dividends.

A golden future for HSBC?
As one of the world's few truly global banks, HSBC sits atop a mighty empire ranging from old-world Europe to the go-go economies of Asia and the Far East. At present, these fast-growing markets account for 34% of customer lending. However, as HSBC increases its market share in these and other emerging markets, it can expect to see higher contributions from lending and profit from the East.

Unlike its rivals among the U.K.'s "Big Four" (Barclays, Lloyds and RBS), HSBC came through the global financial crash relatively unscathed, thanks to its "fortress balance sheet." Today, HSBC has a core tier one capital ratio of 10.5%, up from 9.4% in 2009.

What's more, HSBC is much less leveraged than its bailed-out rivals, with advances accounting for just 78% of deposits. In 2010, deposits rose 7% to $1.2 trillion, with advances rising 8% to $958 billion.

This extra liquidity enables HSBC to lend aggressively in profitable regions; it is now the No. 1 lender in Hong Kong and last year recorded a record market share in the U.K., where it regularly tops the Best Buy tables for mortgages.

HSBC's valuation
However, there is one fly in HSBC's ointment: Its all-important cost-efficiency ratio rose to 55.2% in 2010, versus 52% in 2009. This rise of 3.2 percentage points is slightly worrying, as it suggests that HSBC has spent aggressively on staffing (especially those pesky investment bankers!) and marketing in order to win new business.

Also, HSBC's new CEO, Stuart Gulliver, warned that future rules on global capital (the Basel III standards) would trim the bank's return on equity. Hence, he lowered the target range for return on equity to 12%-15% from the previous goal of 15%-19%. 

At present, HSBC shares trade on a price-earnings ratio of 15 and offer a dividend yield of 3.3%. Normally, this sort of valuation wouldn't turn my head, but you have to pay a premium for global reach and quality.

Thus, for me, HSBC appears to be an attractively priced, but relatively low-risk, play on emerging-markets growth.

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