Dr. Michael Von Preiss, alumnus of Coutt's Singapore (Freddie Mercury, the Queen's bankers!) and Goldman Sachs, a German aristo who escaped the twin tyrannies of his Fatherland and a Brit public school heritage in a Thai monastery and a Japanese Zen ashram, fabled economics guru at the People's Bank in Beijing and BBC Asia, fellow global market strategist, whacko journalist and student of the Arab past.

The other guru is, of course, Salman Khan CFA, ex - DIB treasurer, now HSBC Amanah's capital markets maestro and the (Stuart) Gulliver of Sharia compliant finance in an industry of financial Lilliputians. I remembered the BBME of my teenage years as a stuffy, quasi-colonial bastion of High Street Jumairah Janedom , cheque processing on Nasser Square, the boring oldHome for Scottish Bank Clerks. (HSBC).

In fact, my first visit to a bank branch with my A level economics class from St. Mary's was to BBME, where I was mystified that the L/C senior clerk briefing us did not share my 16 year old passion for Lord Keynes, gold futures or the Austrian School.

Yet the HSBC that hires two brilliant "out of the box" bankers like Sonny and Herr Doktor Mikey is a different beast, as befits a colossus whose chairman is Sir John (MD Action) Bond and CEO is lay preacher Stephen Green.

HSBC's elite management corps, unmatched anywhere else in global finance now that the J.P. Morgan and Chase Manhattan of my Wall Street salad days are history, is unique in global banking. These Oxbridge pukka sahibs evoke the bank's pedigree as the monetary colossus of Victorian Britannica, the bank that financed pashas and taipans, whose Mideast franchise began when the Qajar Shah of Persia gave a banking licence to baron Reuters.

The Imperial Bank of Persia is the ancestor of the bank that now dominates sukuk issuance, has branches across the Levant, Egypt and the Gulf, is a pioneer on the DIFX and a force under GCC merchant banking ( run by Mukhtar, another old HSBC friend, an alumnus of Samuel Montagu!) owns priceless jewels such as Amanah and Saudi British.

The history of BBME is the history of all of us who grew up in Dubai in the reign of the late Shaikh Rashid, when Deira was the banking El Dorado (literally, given the gold souk) of the Gulf, the offshore hub of the Arabian petrodollar, the old haunt of my misspent but fulfillingly Falstaffian youth.

The second reason HSBC preoccupies me is, alas, far more prosaic. Wall Street (or the City, le marche or Honkers as the bank is listed in London, Hong Kong, Paris and Bermuda) has totally misunderstood and mispriced its shares. Yes, fee,fi, fo fum, I smell the whiff of an undervalued bank. Pour quoi?

One, with the exception of Citigroup, HSBC is the only true quintessential global bank. The three legged colossus that Sir Willie Purvez. ( no relation to our own General Pervaiz!) imagined in the 1980's is now a reality. The bank derives a third of its earnings from Europe, the Americas and the Pacific Rim eight years after Hong Kong passed from Crown Colony to the SAR of the Middle Kingdom.

This means that HSBC is not only regional recession/credit crunch bulletproof but also a leveraged warrant on global GDP growth and the plunge in sovereign/credit risk across the world. So why is Sir John MD trading at a mere 11 times earnings? Is not the Asian middle class the new alchemist's lead of world finance, two thirds of the hottest GDP growth since the Florentine Renaissance?

Can another HSBC he recreated in the global banking village. Sure, in about a hundred years. Yet why does HSBC trade at half the valuation multiple of the National Bank of Umm Al Quwain?

Two, I can think of no other bank which has reinvented its business model via strategic acquisitions across continents, not even Citi. HSBC became a force in investment banking and securities with Jamel Capel and Samuel Montagu in private banking with Edmond Safra's Republic Bank (Geneva's only habibi bank, albeit with siefil cap), in Eurozone finance with France's CCF, in consumer finance with Household, in the High Street sceptered isle retail banking with Midland, in New York State (more branches than Chase or City in my home state, to add insult to injury!) with Marine Midland.

This bank invested serious money in the Gulf when Citi, Bank Am and Barclays were pulling out (et tu, SAMBA!) I make serious money following the footsteps of Sir John Bond. When he bought Gropo Bital, I bought the Mexican Fund (MXF). When Sir John bought Demirbank, I knew the lira collapse was over and Istanbul was the mother of all Torro markets. (Remember my original call to buy TKF at 4 in the KT?

TKF is now up 600 per cent — as is the value of HSBC's Turkish bank). When HSBC beefed up on the Nile Delta, I recommended long Hosni (Egypt sovereign Eurobonds, also profiled in KT) and Orascom. (up sixfold since 2001)

Three. The HSBC valuation multiple gives us credit for its sheer growth potential in emerging markets. I consider Sir John the greatest global banking strategist in the world (chuck Prince and Jamie Dimon are provincial boonie Yankees, in comparison!). Just look at his banking deals in the Conradian dark alleys of the world. HSBC bought stakes in Bank of Shanghai (vindication for Comrade Mao's madness in 1949!), Bank of Communications and Ping An Insurance (25 million Chinese policy holders). Its Hang Seng Bank sub owns retail banking in Hong Kong. It just bought into a Vietnamese bank. It is the only NAFAA bank in the world.

It has a stake in UTI Bank and Lady Naina is the dealmaking queen of Dalal Street. It owns Bank of Bermuda the banking world's 800 pound gorilla custodian. It has beautiful consumer finance beachheads Brazil, Russia, Poland, Hungry and Kafkaville. Emerging banking ROE and EPS growth rate would make the CEO of Cisco and Apple turn cartwheels with envy.

This is banking's final frontier in the Captain Kirk sense and the starship HSBC could well goose its EPS growth rate to 15-18 per cent. A multiple for 11 for a unique global money making machine? The best gift horse in the capital market since the Trojans invented the Eurodollar and Prince Walid white knighted Citigroup.

Three. Mr. Markets has misread HSBC's $14.8 billion deal to buy Household International. Sure, ubprime lending is not exactly the Sotheby's of global finance but Household's clientele is not trailer trash either, to borrow the deal verdict from the London tabloids. This was as revolutionary a boardroom coup as Midland.

It doubled HSBC's American assets to $200 billion, gave it almost 50 million new clients in the land of the free, brave and savings challenged. It made HSBC a power in global consumer finance, the monetary lubricant of two-thirds of the global GDP at 11 per cent interest margins. Not since Sir Francis Drake, Lord Cornwallis and the Beatles did their thing have Brit toffs created such a splash in the New World.

Four, Brazil, Russia, China and India are barely one percent each of HSBC pretax profits. Hello? I thought Goldman Sachs predicted BRIC's were the Rumplestilskin of global finance, the juiciest fruits in New Age banking. So mark my words. HSBC will buy a dozen Chinese bank. HSBC will buy a big bank each in Brazil. Russia and India.

Then we will see if the wicked witch of Wall Street still values the bank at a multiple of 11. The world's first trillion dollar market cap bank. Wanna bet over a generational timeline?

Five. HSBC is fixing its mess in private banking after the Republic deal. This is a $250 billion fee business that contributes a laughable 3 per cent to HSBC revenues. International Premier can emerge as a competitor to Citi Gold but HSBC still needs to scale up in private banking.

You do not go from $200 billion AUM to one trillion AUM by hiring RM's, no matter how well connected in Meena Bazaar or Clifton/Colaba. You get there with one big, transformational deal. My killer strategy advice to HSBC? Resurrect Project Red Bull.

Talk to Stan O'Neal at Merrill Lynch. The cognoscenti know that if HSBC bags MER — even at $100 a share —it will never again be a Johnny come lately in private banking, a game where as Godzilla may agree, size matters and blonds have more fun (at least east of Suez, playground of countless Swissie gnomes!)

Sir John Bond often quotes an ancient Chinese proverb. Rooster today, feather duster tomorrow. So true, HSBC was born in London and Hong Kong barely two decades after the Opium War, when Victoria was queen of Blighty, Lincoln sat in the White House, the Manchu Emperor was on the Dragon Throne and Lord Canning had just crushed the frightful sepoy nastiness to become master of India.

This bank, not Jardine's, is the real hong, Noble House of the Orient, a of roosters in world banking.

Six. Why is HSBC so cheap? Eleven times earnings plus the less than 4.5 per cent div yield. A piddly 1.7 times book value. Please Mickey Mouse banks in the GCC, buffalo carts to HSBC's Space Shuttle trade at 6 to 10 times book value. The flat yield curve. Global money markets revenues have fallen in a $100 billion Treasury book British consumer provisions are a pain with a jocko in Downing Street. Hyderabad and Guangzhou have not helped leverage the outsourcing/technology revolution yet.

But those are mere hiccups that will disappear when the Fed rate hike ends and HSBC bids for Merrill (or, I hope not Morgan Stanley). One day HSBC will trade at 16 times earnings.

This means the New York ADR trades at 102.

A 25pc upside and a Uncle Same bondo yield while I wait? What a deal!

MATEIN KHALID
STRATEGIST, CAPITAL MARKETS & RESEARCH

The opinions expressed by the writer are his own and not endorsed by Press Release Network.

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