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Fed's Fisher says uncertainty from fiscal and regulatory side hurting hirings; says cost of bond buying is exceeding benefits; sees rates remaining low long after QE 3

Santander has led the way in spin-offs

For HSBC, the decision to consider a separate listing for its UK operations may mark a radical departure. Yet for Banco Santander, the Spanish retail banking group, it has become almost a way of life. Over the past four years, Santander has listed swaths of its far-flung banking empire on local stock markets, helping to bolster the group’s capital at a time of severe financial stress in its home market. In 2009, it raised $7bn by listing 14 per cent of its operations in Brazil, widely seen as the jewel in the bank’s foreign operations. That move was followed by a partial spin-off of its business in Chile. Last year, at the height of the banking crisis in Spain, Santander decided to list 24.9 per cent of its lucrative Mexican business in one of the largest IPOs of the year. The offering raised €3.2bn in fresh capital, valuing the entire branch at €12.73bn at the time of the sale. Santander is also in talks to list its car finance unit in the US, and has signalled repeatedly that it wants to list its UK operations, though it has veered away from doing so in the near future. Santander describes this set-up as the "model of subsidiaries", in which listed foreign branches are legally independent and autonomous in capital and liquidity. The bank argues that this approach reduces systemic risk by limiting contagion in a crisis, and provides a strong incentive to local management. Most analysts believe, however, that the flurry of partial spin-offs was above all else Santander’s response to the financial crisis in Spain – and the corresponding need to bolster the bank’s capital position at a time of unprecedented market scrutiny.

--> Stock is unchanged in HK.

HSBC eyes listing of £20bn UK bank

HSBC has sounded out investors about a flotation of its UK arm, in a move that would realise value from its high street banking business and address regulatory pressures. The bank has in recent weeks asked investors whether they would support the sale of a sizeable stake in the UK business. It has also discussed the issue informally at board level, according to three people familiar with the project. If Stuart Gulliver, HSBC’s chief executive, presses ahead with the plan, it will partially reverse the group’s landmark acquisition of the UK’s Midland Bank more than 20 years ago. That deal helped HSBC to become Britain’s the fourth biggest high-street operator after Lloyds, RBS and Barclays. Thinking is at an early stage, according to those involved, but the plan would be likely to involve the listing of a minority stake of up to 30 per in the UK retail and commercial banking operation. Investors estimate that such a business could float with a market capitalisation of about £20bn. Such a move would coincide with a slew of other bank listings in the UK. Lloyds Banking Group is preparing to float its TSB subsidiary next year, to comply with EU state aid penalties imposed after its UK government rescue. Royal Bank of Scotland’s Williams & Glyn’s unit is also set to list by 2015 under the same EU penalty regime. Virgin Money, too, has signalled a desire to list over a similar timeframe, while Spain’s Santander remains keen to part-float its UK subsidiary, though it has shelved plans for the time being. It emerged on Sunday that One Savings Bank, the lender formed from a restructuring of building society Kent Reliance by private equity firm JC Flowers, could also float next year For HSBC, a carveout of the UK business would help to deal with the requirements of the incoming Vickers rules, which demand that UK banks ringfence their domestic retail banking operations. Although formal separation is not required, some bankers believe that the strictures of the rules may motivate bigger lenders to break themselves up. Other regulatory changes, such as a tougher capital regime in the UK than elsewhere, may also make it logical to spin out a British operation. HSBC has made little secret about its irritation with the growing costs of being a UK regulated bank. The group is expected to pay about £900m, or 40 per cent, of the industry’s £2.2bn bank levy, to the Treasury this year. And it has long bemoaned the ringfencing rules and steadily rising regulatory capital requirements. HSBC has toned down its public complaints, calming fears that it might move its headquarters to Hong Kong. Although a listing of the UK business could bring a potential move of the group HQ back on to the agenda, people close to the bank said that any question of redomiciling remained "off the table". Some HSBC executives believe that floating the UK business would also make sense on valuation grounds. It would crystallise a higher rating for the whole group, especially in the light of buoyant investor sentiment towards the UK and the prospects for its banking sector. Shares in Lloyds, the only "pure-play" listed UK high-street bank, and a close proxy for the HSBC plan, have risen nearly 70 per cent over the past year compared with only 4 per cent for HSBC.

Shale Offers Safety if Oil Prices Weaken

With apologies to Warren Buffett, when the tide of oil washes in, investors will discover who can and can't swim.

The U.S. exploration-and-production sector faces a tricky 2014, largely due to its own success. Rising domestic and Canadian output is leading to a glut in North American oil. When some refineries shut down for maintenance this fall, reducing capacity to process oil, West Texas Intermediate crude prices slumped by 16%–and stalled out this year's rally in E&P stocks by mid-October.

The glut looks set to grow in 2014. Goldman Sachs GS +1.00% forecasts U.S. and Canadian oil supply to grow by 1.45 million barrels per day next year. That alone beats projected global demand growth of just 1.35 million barrels per day. In that scenario, the most efficient E&P firms look best placed to ride out lower oil prices.

U.S. shale resources differ widely. PFC Energy, a division of IHS, estimates breakeven prices range from $40 to beyond $100 per barrel. Clearly, some firms face the risk of profits being squeezed or having to shut in production if WTI weakens next year, which would undermine growth targets.

The best assets usually lie at the core of prolific shale areas such as the Eagle Ford and Permian Basin in Texas. James Sullivan at Alembic Global Advisors pegs the breakeven price for the Eagle Ford core at around $55 a barrel. Areas closer to the Gulf Coast also enjoy better transportation options to refineries. Investors in firms operating in the Bakken region should bear this in mind. It is prolific and low-cost, but its location in and around North Dakota translates into bigger discounts on its oil.

Mr. Sullivan points to Concho Resources. CXO -4.14% Its development efforts are focused in the Permian area, where breakeven prices range mostly between the high $60s and $80 a barrel. Concho has also hedged the majority of 2014's oil output at more than $90 a barrel.

Another stock to consider is EOG Resources, EOG -3.23% which has assets across the Eagle Ford, Permian and Bakken and a proven track record on efficiency. Pioneer Natural Resources, PXD -3.92% with its large Permian presence, is another. Swimming in oil isn't a pleasant experience, but it's better than sinking in it.

Smith & Nephew Ready to Step Up

Someone has got a spring in their step.

Shares in Smith & Nephew, SN.LN +0.77% the U.K. maker of hip and knee implants, are up almost 25% this year, recently hitting all-time highs. S&N—once the subject of perennial takeover rumors—has spent this year snapping up businesses to get more products into emerging markets. Meanwhile, there are signs the orthopedic market is on the up. For investors, S&N could keep its bounce.

Orthopedics is, to some extent, a bet on economic recovery. The downturn meant patients opted to wait for elective procedures like hip and knee replacements. In Europe, the economic pickup has been later to arrive, while austerity added pressure on prices. At S&N, which has greater European exposure than larger U.S. peers, orthopedic growth has trailed the broader market.

It may now be catching up. In the third quarter, S&N's implant revenue grew by 3% in hips and 2% in knees, versus 5% and 4%, respectively, for the global market. The company is launching new products. Meanwhile, sales of S&N's metal-on-metal hip have slumped after problems with a rival system from Johnson & Johnson. JNJ +1.58% But that hit seems to be abating, knocking only one percentage point off S&N's total hip growth in the third quarter.

And S&N offers more than just joints. About 30% of sales this year are forecast to come from its wound-care division. An enzyme-based treatment to remove necrotic tissues from wounds is expected to post revenue growth of more than 40%; negative pressure therapy, which speeds up healing, is another fast-growing area in which S&N is taking market share.

The company has also moved into emerging markets ahead of rivals. Sure, its strategy of developing simplified products for emerging markets remains somewhat unproven. But after deals in India, Brazil and Turkey this year, S&N makes about 13% of sales in the developing world, a figure it expects to be 25% in five years.

S&N no longer comes cheap. At about 16 times 2014 earnings, according to FactSet, the company is trading in line with U.S. rival Stryker. SYK +1.86% But S&N's growth prospects in wound care could merit a premium, argues Bernstein. And with little debt, there should be room for further share buybacks even if the company continues to make small acquisitions.

That should help keep S&N sprightly.