HSBC share price slides after RBC downgrades stock

Shares in HSBC fell as much as 1.8 per cent today after RBC cut its recommendation on the stock, forecasting a $5bn headwind from falling interest rates.

In a note today, RBC Capital Markets downgraded the stock from ‘sector perform’ from ‘outperform’.

The broker noted that the Asia-focused bank had outperformed its UK peers by 31 per cent this year, but suggested that now was a good time to cash out.

“Earnings momentum looks to have turned and an improved capital distribution profile is now reflected in consensus,” it said in the note.

RBC predicted that lower rates would pose a “material headwind” of around $5bn over the next two years but would be offset by balance sheet growth.

“However, that growth is unlikely to be anything remarkable” over the coming years, it said, as HSBC’s five largest geographies are only expected to see around 1.9 per cent average GDP growth over the next two years.

RBC added that the shares now looked “more fair value” and lowered its price target to 775p from 825p.

Shares in Lloyds and Natwest also ticked down on Wednesday morning after RBC noted a valuation gap between the stocks.

“Over the medium-term, we retain a preference for Lloyds, given that strategic investments should continue to benefit other income and cost control, and we feel more confident on asset quality,” it said.

The downgrade comes after HSBC announced yet another share buy-back programme at the end of October as higher interest rates ensured that profit more than doubled in the third quarter.

However, rising costs and impairments related to China’s economic slowdown meant that profit missed analysts’ expectations.