Broker snap: Citi upgrades HSBC to 'buy'

18th Jun 2013 08:10

Citigroup has upgraded its recommendation for HSBC from 'neutral' to 'buy', saying that the future looks better for the global banking giant.The stock is down 10% over the last month and up just 5.0% so far this year, compared to -6.0% and +7.0% for the UK banking sector, respectively.The broker said: "With most of the concerns (like US asset quality issues, anti-money laundering fines etc) behind them, and potential benefits once net interest margin (NIM) stabilises, we upgrade HSBC to 'buy' (from 'neutral') with an unchanged target price of 770p."The shares have an attractive dividend yield, the balance sheet has been strengthened, and the stock looks attractive, especially for income investors."Citi said that Chief Executive Officer Stuart Gulliver is "getting there" and is well on track to achieve many of the targets he set out in 2011 when he took over the reins."HSBC today is a slimmed down Panamax compared to an over-sized Capesize vessel in 2011, after over 50 business divestments/sales over the past few years. Costs are lower today with company already exceeding its 2013 $3.5bn cost reduction target. HSBC has also successfully rebuilt its core capital ratio (9.8% Basel III, pro-forma) and already offers an attractive dividend yield (4.1%)."The broker retained its 'buy' rating and 1,775p target price for sector peer Standard Chartered, saying that that the shares look oversold following their recent falls on the back of concerns over slowing emerging markets (EM) and rising NIM pressure.While the broker said that EM and Asian equities typically underperform during periods of US-dollar strength, HSBC and StanChart could hold up well: "they clearly outperform European bank peers during EM FX strength but do not necessarily underperform during EM FX weakness".Meanwhile, the banks - which were focused on growth before - are now most cost- and return-focused in the face of slowing Asian/EM growth, Citi said.HSBC's shares were 1.58% higher at 692.3p by 09:16 on Tuesday, while StanChart was up 1.34% at 1,463.3p.