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HSBC: Looking vulnerable

In Banks, China, Emerging markets, Hong Kong on 23/02/2019 at 4:49 am

Because investors are likely to be disappointed: slower revenue growth, no share-buy back and dividend yield could go up (share price falls).

JPMorgan Cazenove, a leading UK broker, downgraded HSBC to “underweight” from “neutral” with a 620p target on the back of the bank’s full-year results on Tuesday. Among the broker’s concerns was a rise in funding costs as Hibor — a measure of lending costs between banks in Hong Kong — underperforms Libor, the equivalent UK rate.

Although we rate HSBC’s management highly and view the group on the right strategic path long term, we believe that revenue growth pressures (partly as a result of the changed outlook for US rate hikes, a widening Libor-Hibor gap and macro uncertainty) alongside cost investment needs could weigh on the [return on tangible equity] outlook for longer than we previously thought.”

With HSBC unlikely to deliver an 11% on tangible equity by 2020, its premium valuation of 1.2 times book value looked exposed, JPMorgan said. It added that while HSBC no longer had a capital surplus, but investors continued to expect a share buyback this year.

The dividend of 51 cents (US) should remain stable over the medium term but the yield of 6% (in line with other UK banks) might move higher (i.e. because share price falls) because of the the uncertainties faced,

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