JP Morgan prefers StanChart to HSBC

Ongoing pressure on revenues from global markets and Asian wealth management might create downside risk for the sector, but it was already priced into StanChart shares, JP Morgan´s Raul Sinha said in a research note sent to clients.

Sinha had penciled in a 23% year-on-year fall in first quarter revenues at the Asia-focused lender, equating to a broadly flat reading quarter-on-quarter.

Furthermore, the positive 'news-flow´surrounding the restructuring of one of StanChart´s key exposures on the Subcontinent reinforced his view that asset quality pressures peaked in 2015.

Sinha was referring to Russian oil major Rosneft´s announcement on 16 March that it would take a 49% stake in Essar Oil, with the deal being expected to close by June.

JP Morgan retained its 'overweight' stance on StanChart shares and its 'underweight' view on HSBC.

For HSBC, Sinha said his 2016 revenue estimate was 5.4% below consensus and his forecast for the lender´s earnings per share 7% below.

He also expected an 8.0% year-on-year decline in HSBC´s first quarter revenues.

"The combination of weakening revenue, flat underlying costs and below normalized impairment expectations is a key risk for valuation," he said, given how HSBC´s shares were trading at 0.9 times price-to-tangible net asset value versus stock in StanChart which was changing hands at 0.5 times and yet both lenders were offering a return on net asset value of about 8.0% for 2018.

Despite his stated preference for StanChart over HSBC, Lloyd´s remained Sinha´s top-pick among UK banks.