Investec cuts HSBC to 'sell' from 'hold'

The brokerage argued that former HSBC CEO Mike Geoghegan played a key role in the UK’s decision to leave the European Union, articulating his view of a clear business-positive impact from Brexit.

Investec noted that since 23 June, HSBC shares haven risen 3%, while the FTSE 100 has gained 4%. HSBC’s peers, however, Lloyds and Barclays, are both down 25%.

“HSBC’s shareholders must be suitably grateful; unlike most UK banks HSBC has participated in the ‘Brexit bounce’ - a 4-day 10% rise in the FTSE 100 index.

“But in our view, a now likely cut in UK interest rates, with assumed negative loan growth, pushes out HSBC’s 10% return on equity aspiration to 2020e. We expect the share price to retrace.”

The brokerage expects UK interest rates to be cut by at least 25 basis points, probably in August or sooner, and argued that “lower-for-even-longer” interest rates will put further pressure on HSBC’s net income margin.

At 1006 BST, HSBC shares were down 1.2% at 464.35p.