Standard Chartered PLC (LON:STAN) and HSBC Holdings PLC (LON:HSBA) are uniquely able to service low-risk global corporations and benefit from growth in emerging economies, according to Berenberg.
“We believe these banks will remain in a minority of banks with a strong risk focus but, increasingly, will benefit from superior growth,” Berenberg said in a note to investors.
Berenberg raised its rating on Standard Chartered to ‘buy’ from ‘hold’ and lifted its target price to 920p from 700p.
The bank’s “differentiated network” and focus on large multinationals allows it to profit from the persistent drivers of trade and investment such as greater activity between emerging economies and China’s Belt and Road initiative, Berenberg said.
'Risk-focused growth now possible' for StanChart
The investment bank said Standard Chartered’s actions to improve asset quality are complete and the loss rates in the Bank of England’s stress tests are comparable with HSBC in key regions and below UK banks’ global average.
“This provides more than just stability. Managers can now focus on growing the core business and client relationships will suffer less from decisions to end or reprice business. Risk-focused growth is now possible,” it said.
It added that it believes 5% annual revenue growth is obtainable and that it is among the 25% of banks in its coverage that trade below tangible book value, which is “unwarranted” given that it is the only risk-focused lender offering meaningful growth.
HSBC fully-valued, says Berenberg
On HSBC, Berenberg said the bank is a “long-term winner” but appears fully-valued. It repeated a ‘hold’ rating on the stock but raised its target price to 680p from 600p.
“We take comfort in HSBC’s risk focus and expect this to continue. We do, however, expect HSBC’s new management to tilt the strategy towards greater growth,” Berenberg said.
“HSBC’s mix of lower risk, moderate growth and capital returns are appealing but are also well recognised.”
Berenberg expects HSBC to report revenue growth of 3% per year between 2017 and 2020, in part thanks to rising interest rates.
Both HSBC and Standard Chartered should benefit from higher US interest rates with the consensus expectation for a further three hikes of 25bp during 2018, it added.