HSBC is on the slide on concerns about whether it can maintain its dividend in such a difficult trading environment.
In the wake of its recent results, analysts at Bernstein Research believe the payout to shareholders could be in danger, especially given its performance in Hong Kong. They said:
When HSBC struggles to grow its Hong Kong loan book, it’s bad news for the income line.
HSBC’s fourth quarter results (quite dreadful) are symptomatic of the macro headwinds that the global banking system faces this year – a lack of credit demand, a sharp drop in corporate activity and a low rate environment that can only get worse. In this environment, we find it impossible for the bank to sustain its progressive dividend policy and expect the bank to signal a cut anytime in the next 6 months. For a stock that is widely held as an income stock, we feel a cut would be painful and would reset valuation significantly downwards this year. Accordingly we downgrade the stock to underperform [from market perform] with a price target of 380p [from 550p].
HSBC has done as well as it could within the limitations of a low rate and growth environment. The reality remains that this bank is a deposit gathering machine that depends on rates to generate more than 60 basis points of RoTA. Now that we have had near zero rates for around 8 years and doesn’t look like changing any time soon, it is difficult to see any upside from here. Its key money spinner – Hong Kong – is sharply slowing down and we are actually moving more towards negative rates across the world. A dividend cut would just bring home these headwinds and spook investors.
HSBC shares are currently down 7.7p or 1.6% at 459.65p.
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