HSBC cuts Standard Chartered to 'hold' from 'buy'

HSBC said Standard Chartered’s share price has responded positively to the weaker pound against the dollar following Brexit as the company’s revenues are dollar-dominated.

Shares have gained 17% since the EU referendum result on 24 June compared to a 9% rise for the Euro Stoxx Bank index.

“There could be some further upside from GBP depreciation: the UK currency may need to adjust further to maintain the capital inflows necessary to fund the current account deficit. But at some point fundamentals will re-assert themselves, and the message from second quarter results is not encouraging,” HSBC said.

HSBC added that it seems increasingly likely that the group will not achieve its target of an 8% return on equity (ROE) by 2018 unless revenues rebound about $3bn. HSBC expects an ROE of 6% in 2018.

The bank said slower economic growth in Asian economies and the deferral of US interest rate increases are part to blame. In addition the de-risking of the group has proved “more damaging to revenues than envisaged by management”, HSBC said.

“The key upside risk relates to the exchange rate. Continued depreciation of GBP relative to the USD would raise the value of the group’s dollar-denominated earnings for UK investors.

“The main downside risk is systemic credit issues in HongKong and China initiated by rising US rates.”

Shares fell 3.05% to 633.20p at 0933 BST.