HSBC valuable in long-term despite downgrade, Berenberg says

However, its analysts kept their 12-month target price for HSBC's shares at 600p.

The German investment bank said HSBC's 7.0% market-implied cost of equity was too low, such that even assuming steady dividends in perpetuity the stock was "fully valued".

"If we assume zero growth in this capital return, which seems fair considering where we are in the long-term financial cycle, the market-implied cost of equity for HSBC is 7%. For us, this is too low, despite HSBC being a long-term winner."

Hence, it downgraded its recommendation from a 'buy' to a 'hold'. While many analysts have cited HSBC's weaker-than-expected revenue growth as a cause for concern, Berenberg suggested it was more a reflection of the lender's focus on risk - which is a good thing.

"HSBC is on our long-term winner list due to two main factors. Firstly, its focus on risk and return, and secondly, its focus on cutting costs in absolute terms. We see these two traits enabling HSBC to continue delivering sustainable capital return," Berenberg analysts said.

"As the current cycle comes to an end with central banks talking up rates and removing liquidity from the system, HSBC should be able to differentiate itself from its peers due to these two traits."

HSBC's capital return was estimated at $13bn per annum in perpetuity, split between $10.0bn of dividends and another $3.0bn via share buybacks.

That was equal to more than 90% of Berenberg's estimate for HSBC's net profits in 2019.

Despite concerns for financial services firms in the aftermath of last year's Brexit referendum, HSBC shares had gained more than 56% over the last year.

On Tuesday, shares in the London-based bank were 0.51% lower at 725p as of 1038 BST.