Which is the better global bank – HSBC or Citigroup? On most measures, the answer looks self-evident. Britain’s biggest bank has survived the financial crisis more or less intact, chalking up decent profits throughout. Its US rival was floored by multibillion-dollar losses, an enforced part-nationalisation and only now is toying with dividend pay-outs again.

The results for the first half of this year speak for themselves. HSBC on Monday notched up a creditable pre-tax profit of $11.5bn, a return on equity of more than 12 per cent, leaving Citi’s $8.5bn, with an ROE of barely 7 per cent, in the shade.

It is all a far cry from 2006, the last full year before the global financial crisis took hold, when Citi racked up nearly $30bn of profits and declared a 54 cent dividend for the last quarter of the year alone. That same year saw HSBC do pretty well, too, but profits were still more than 25 per cent below its US rival.

It is a simplistic analysis, but the conclusion is inevitable: HSBC has overtaken Citigroup. Will it stay that way? In the two-horse race to be the leading global bank, which group has the better prospects? On the face of it, HSBC still looks the obvious choice, even though it is present in “only” 87 countries compared with Citi’s 100-plus. It has a momentum of profitability that promises dividends aplenty in the quarters ahead. Its promised 18 cents pay-out for this year, up 12.5 per cent, compares with the 1 cent a share that Citi declared last month, after getting the go-ahead from regulators to resume dividend distributions.

The gap could widen, if HSBC’s new efficiency programme, which aims to strip out as much as $3.5bn of costs, works as planned. The group’s big problem as a far-flung group with self-contained operations in dozens of different countries, has long been one of inefficiency.

The biggest advantage of all, of course, is HSBC’s “footprint”. Its operations have always been biased towards emerging markets, all the more so in the first six months of 2011, when revenues from its Asian heartland contributed nearly half of the group total, up strongly on a year ago.

Citi also has impressive emerging markets operations, particularly in parts of Asia and Mexico, but that presence is patchier and, as the financial crisis showed, Citi is a hostage to the fortune of the US far more than any other market.

That exposure has continued to plague Citi’s fortunes, partly due to broad US macroeconomic concerns, but largely because profits continue to be dragged down by vast impairments on its old loan book. The bank’s shares are down nearly 19 per cent this year, three times the decline suffered by HSBC, even though investors in European banks have been spooked by exposure to the eurozone periphery nations such as Greece.

You could see that as a reason to be bullish on the Citi story. With so much further to recover, buying Citi stock now – with the shares valued at less than 80 per cent of the bank’s tangible book value, compared with an inflated 138 per cent valuation for HSBC stock – could pay off. Already in second-quarter results, Citi beat expectations with a 24 per cent rise in profits, compared with 3 per cent at HSBC.

The truth is that HSBC never took advantage of its rival’s weakness to steal business and assert its global supremacy. That was largely thanks to its own US disaster – consumer lending subsidiary Household, which was trivial by comparison with Citi, and a bizarre aberration in its broad long-running strategy of focusing growth on emerging markets, but was nonetheless costly and distracting to sort out.

Now, as Stuart Gulliver, HSBC’s new chief executive, clearly realises, it is too late to exploit Citi’s injuries. Instead, he has embarked on an efficiency drive that his predecessors should have undertaken years ago. The odd thing is, he is doing many of the same things now that Vikram Pandit, his opposite number at Citi, has been doing for years, under pressure from the US authorities – slashing costs, pulling back from overambitious growth in distant lands, accumulating capital. Both banks have even put mirror-image US credit card operations on the block.

The two groups, now with realigned priorities, will continue to go head-to-head in their new priority businesses, too, corporate banking, trade finance and “high-end” personal banking.

Both Mr Gulliver and Mr Pandit are also investing. Costs at Citi were up 8 per cent in the first half, while HSBC’s overheads rose 13 per cent, with both banks expanding investment banking operations.

But the crucial part of Mr Gulliver’s strategy is his beefed-up commitment to Asian growth. And that is what the investment appeal of HSBC versus Citi ultimately comes down to. If Mr Gulliver can build on his early success, and emerging markets do not seriously falter, HSBC must surely cement its new-found dominance over its old US foe.

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