Bernstein downgrades HSBC as it points to unsustainable dividends

It said the bank’s “quite dreadful” fourth quarter results were symptomatic of the macro headwinds the global banking system faces this year, pointing to a lack of credit demand, a sharp drop in corporate activity and a low rate environment that can only get worse.

“In this environment, we find it impossible for the bank to sustain its progressive dividend policy and expect the bank to signal a cut anytime in the next six months,” it said.

“For a stock that is widely held as an income stock, we feel a cut would be painful and would reset valuation significantly downwards this year.”

Bernstein said HSBC has done as well as it could within the limitations of a low rate and growth environment.

“The reality remains that this bank is a deposit gathering machine that depends on rates to generate more than 60bps of return on tangible assets.”

However, having had near zero rates for around eight years and no change in sight any time soon, Bernstein said it was difficult to see any upside from here.

“Its key money spinner – Hong Kong – is sharply slowing down and we are actually moving more towards negative rates across the world. A dividend cut would just bring home these headwinds and spook investors.”

At 1417 GMT, HSBC shares were down 1.6% to 460.10p.