Barclays raises target price on HSBC but leaves rating at 'equal weight'

8th Nov 2016 10:20

(ShareCast News) - Barclays left its rating on HSBC at 'equal weight' and raised its target price to 600p from 550p after the bank reported its third quarter results.HSBC on Monday posted a 86% drop in third quarter pre-tax profits to $0.84bn, while revenue fell 37% to $9.5bn, both on a reported basis.Profits were hit by several exceptional items, including a $1.7bn loss from the disposal of its Brazil bank, $1.0bn of restructuring costs, $1.4bn of negative movements in its own debt as credit spreads tightened and $0.5bn of UK customer redress charges, together with a $658m drag from the strengthening US dollar.However, the Brazil sale allowed HSBC to complete almost two thirds of a $2.5bn share buyback as well as maintain its ongoing dividend.The bank's balance sheet was also in better shape, thanks to a change in capital requirements for Chinese bank BoCom, allowing the common equity tier-1 capital ratio to increase by nearly two percentage points to 13.9%."A much stronger reported capital position increases our confidence that HSBC will be able to deliver the $3.5bn of share buybacks that we previously estimated for 2017 and also raises the prospect of more than $8bn further capital return in the medium term," said Barclays."Despite a current 13.9% CET1 ratio, this seems dependent on global and regional regulatory requirements being clarified and the ability of HSBC's regional businesses to throw off excess capital."Barclays said the earnings outlook for HSBC remains "less inspiring" as it is cautious on assuming a continuation on the positive third quarter revenue trends seen in the Global Banking and Markets, and Wealth Management businesses. However, continued tight cost control remains a positive, Barclays added."Reflecting some improvement in medium-term return on tangible equity and greater confidence in capital return we raise our price target to 600p (from 550p), retaining an equal weight rating."Shares in HSBC fell 1.19% to 614.90p at 1043 GMT.