Redburn downgrades HSBC to 'sell', warns of QT's impact on HK
HSBC Holdings
663.60p
16:40 26/04/24
Analysts at Redburn called into question HSBC's plans to generate multi-year revenue growth with less capital, downgrading the shares to 'sell' in the process.
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"Capital requirements tie management hands. Hence, HSBC plans to generate revenue growth while using less capital. It forecasts its revenue to risk-weighted asset (RWA) margin will reach an unprecedented 7% by 2020," they said in a research note sent to clients.
Yes, higher interest in the US are a good way to achieve capital-efficient revenue growth. They always have been, Redburn said, allowing the lender to make money on its excess liquidity.
But in HSBC's case, quantitative tightening in the States would impact it through a completely different channel as well, via Hong Kong.
"An enforced tightening on an indebted private sector is a dangerous mix for Hong Kong," they said.
Critically, the Asian financial hub had accounted for the lion's share, more than two-thirds, of HSBC's profit growth since 2016.
Even in the best of circumstances, and when compared to its performance over the past two decades, the lender's expectations for revenues and risk-weighted-assets were "unprecedented", Redburn added.
A shift in the business towards the "highly competitive" wealth management space was also set to result in reduced operating leverage, they explained.
"The premium rating HSBC commands will deteriorate as revenue-led EPS downgrades dovetail with questions over the growth outlook in its core region. We downgrade to Sell."