Barclays downgrades HSBC, expects near-term growth to stagnate

18th Mar 2015 10:31

Barclays said it sees "another three years of hard labour" at HSBC as it lowered its recommendation on the shares from 'overweight' to 'equal weight'."A combination of higher capital requirements, macro headwinds and the need for further significant restructuring lead us to downgrade our earnings expectations 12-16% and to cut our rating [...] with a reduced price target of 575p (from 685p)," Barclays said.Barclays told clients that earnings, returns and dividend growth at HSBC will stagnate in the near to medium term as the bank deals with increased structural challenges and looks to build capital.Analysts said: "As a result of an increase in required capital levels HSBC has effectively embarked on another three-year restructuring plan which, although needed, could be significantly disruptive both in terms of the need for cost cutting but potentially also a rethink of the businesses that HSBC is in."At the same time, HSBC needs to build capital to a higher level than previously anticipated which is likely to both slow growth and restrict the dividend potential."For HSBC to achieve a return on tangible equity (ROTE) of more than 12% in 2018 it will need to cut costs by more than 5% that year, Barclays added. ROTE is likely to remain stuck at 10-11% up to 2017, it said.Despite the negative comments, the stock was up 0.7% at 574.44p by 10:43 on Wednesday.