Barclays downgrades Standard Chartered on valuation

Barclays said management actions have stabilised the business with revenues appearing to have bottomed out and provisions now relatively steady at still elevated levels but significantly better than 2015.

“There has also been early progress on restructuring although this is likely to be a lengthy process with the initial target of an 8% return on equity by 2018 now pushed back.

“While we see the macro outlook as relatively supportive and expect earnings to continue improving, we believe that the valuation has now significantly disconnected from the medium-term earnings potential of the business.”

Barclays said that both a fundamental analysis and return-adjusted peer comparison suggest the shares are overvalued by 20%.

Barclays maintained its ‘equalweight’ rating on HSBC but upped the price target to 550p from 525p.

It said the bank’s restructuring is going broadly according to plan although a weaker interest rate environment has led management to push back RoE expectations and revise dividend guidance.

“However, a lack of growth prospects combined with business disposals has allowed the company to announce a $2.5bn share buyback in 2016 and we estimate up to a further $3.5bn in 2017.

“We see this ability to return capital to shareholders as offsetting the weaker earnings outlook and rate the shares equalweight.”

At 0950 BST, StanChart shares were down 1.9% to 646p while HSBC was down 0.6% to 578.30p.