Broker snap: HSBC to face headwinds in 2011

22nd Feb 2011 12:35

Nomura maintains its cautious stance on banking titan HSBC, saying that growth prospects in 2011, which could lead the new management to revise what the broker sees as ambitious growth targets.The lender appears to be facing headwinds to margin and revenue in the 2011 fiscal year given continued balance sheet reduction, HSBC Finance run-off and the geographic mix, according to the Japanese broker.Some argue that gearing up the balance sheet will boost revenue, as the bank is a relative beneficiary of rising yields because of its high liquidity. However, analyst Robert Law says the increases here are unlikely to be sufficient to transform the revenue outlook.Nomura's pre-tax profit forecast for 2010 is under the $20.6bn consensus figure by more than $2bn, after management indicated that the third quarter run-rate was down on the first half. Additionally, the fourth quarter is often softer than the third."We expect minimal revenue growth at the group level, with negative operating leverage. Impairments are likely to be the bright spot; we estimate a near 50% fall, with improvements at HSBC Finance and the on-going operations," Law predicted.A 'neutral' rating and 725p target price are retained.