Jefferies says HSBC needs to find 'a new narrative', downgrades to 'hold'

Analysts at Jefferies downgraded HSBC to 'hold' on Wednesday, stating the bank needs to find "a new narrative" as past rate hikes had not transmitted through to margin improvement.

In addition to stripping the bank of its 'buy' rating, Jefferies said upside optionality from rising rates had largely fallen away, making operating leverage "harder to achieve" as it cut its price target on HSBC to 691p from 850p.

Jefferies noted that while the bank had generated earnings and distributed the majority of them so as to deliver "an attractive yield", it was unclear on how HSBC's "unparalleled to high growth markets" to growth markets was otherwise paying off.

"Despite being highly asset sensitive, rising short interest rates have not transmitted through to higher group net interest margins," said Jefferies.

The analysts also said that while management had delivered "modest operating leverage", there was still a "need to invest" following "a decade of underinvestment".

"Without the tailwind of margin improvement, investors may be disappointed in the trajectory of cost/income," said Jefferies.

"A retrenchment on buybacks at H1 would be a negative signal. We cut '20E PBT by 8% and value the shares at 691p, which drives the rating to 'hold'."

As of 1300 BST, HSBC shares had slipped 12.8% to 656.30p.