Next week, three stalwarts of the financial sector, HSBC Holdings plc (NYSE: HSBC), Visa Inc (NYSE: V) and Berkshire Hathaway Inc (NYSE: BRK-B)will report quarterly earnings -- here's what investors need to know:
Visa is reportedly on the verge of announcing its acquisition of Visa Europe.
Visa joins the M&A bandwagon
Visa reports its fiscal fourth quarter earnings before the market open on Monday. Given the amount of business Visa does internationally, it will be feeling the sting of a strong dollar, but investors have reason to be relatively sanguine going into the earnings announcement after Visa's nearest rival, MasterCard (NYSE: MA) reported solid quarterly results last Thursday.
In any event, the market's focus may be elsewhere on Monday if Visa announces a deal to acquire its counterpart Visa Europe. The Wall Street Journal reported on Thursday afternoon that the deal is imminent, pegging the transaction value at $22 billion.
Visa typically reports its fourth quarter results at the end of October, so the switch to early November has sparked speculation that the payments processor wants to announce the deal simultaneously.
Reports of the latest round of acquisition talks between Visa and Visa Europe first surfaced in May. Visa had confirmed that talks were ongoing and that it was aiming to seal a deal by the end of October.
The acquisition would enable Visa to further diversify its revenues and would help close the gap with Mastercard in Europe (the latter already owns its European affiliate). The U.S. accounted for more than half (54%) of Visa's revenues in fiscal 2014, against just 39% for MasterCard.
HSBC: Taking cover?
The United Kingdom's largest bank, HSBC, will report earnings on Monday. Results for U.S. universal banks were middling; investors will be anxious to see whether HSBC can sustain the 10.6% (annualized) return on equity (ROE) it achieved in the first half of the year, which would put it ahead of the Group's target for an ROE "in excess of 10% by 2017".
HSBC's activity is heavily weighted toward Asia, which accounted for more than two-thirds of the bank's profits in the first half. That tilt provides exposure to higher-growth economies, but that may have been a double-edged sword last quarter, as emerging economies in Asia slowed, China in particular.
Finally, the bank has said it would update investors on the review of its headquarters location, with a decision to be made by the end of the year. The Wall Street Journal reported that the cities in the running are Hong Kong or Shanghai (which would mark a return to its roots), Paris and "cities in the U.S.".
The review is the results of the bank's concerns that its size makes it a highly visible target for onerous regulations in the U.K.. For reference, HSBC's total assets of $2.57 trillion (at Jun. 30) exceed those of JPMorgan Chase, the largest U.S. bank by assets. In fact, HSBC's balance sheet is roughly the same size as the UK economy!
This columnist isn't sticking his neck out in expressing the odds of HSBC relocating its headquarters to Paris are roughly the same as those of CEO Stuart Gulliver announcing that all staff must begin wearing a beret forthwith. Given its tilt to Asia, Hong Kong or Shanghai would seem to be the logical choices.
Berkshire Hathaway: Steady as she goes
Consistent with its reporting habit, Berkshire Hathaway will release its third quarter results after Friday's market close. There is no earnings conference call but the quarterly report is a model of concision and clarity.
Warren Buffett's conglomerate is not a pure-play financial institution, of course, but it does have significant financial businesses, notably in property-and-casualty insurance and reinsurance.
Berkshire Hathaway is as close to a "set it and forget it" stock as you are likely to find, but it will nonetheless be interesting to see what impact, if any, the slowdown in the U.S. economy in the third quarter and continuing hardship in energy markets has had on the sprawling conglomerate. Berkshire Hathaway Energy owns utilities MidAmerican Energy and Pacificorp; Berkshire Hathaway is also the second-largest shareholder of Phillips 66.