BofA Downgrades HSBC, But Says There's Support For Shares

The increasing spread of global lockdowns could impact HSBC Holdings’ HSBC earnings enough to mean two years of an uncovered dividend, according to BofA Securities.

The HSBC Analyst

Alastair Ryan downgraded HSBC from Buy to Neutral, while reducing the price target from £5.60 to £5.00.

The HSBC Thesis

Further disruption of credit and money markets could translate to drawdowns on credit lines and higher market risk weighted assets, Ryan said in the note.

He lowered the earnings estimates for 2020, 2021 and 2022 from 44p to 43p per share, from 51p to 48p per share and from 57p to 55p per share, respectively. This points towards a likely dividend cut ahead.

Ryan noted, however, that a lower dividend was much better than the zero dividend that banks in the euro area seem to be headed for and this should provide support to HSBC’s shares.

He further wrote, “We also take considerable comfort from HSBC’s historically robust underwriting. And once the significant operational dislocation of the lockdowns has passed, we see HSBC delivering on its restructuring, which refocuses the group on its strongest franchises and higher-growth markets.”

HSBC Price Action

Shares of HSBC had declined 1.1 % to $28.54 at time of publication Monday.