Shares in HSBC Holdings PLC (LSE:HSBA) are down 1.2% after RBC Capital Markets downgraded the Asian-focused bank, believing now is a good time to take profits.
Earnings momentum looks to have turned and an improved capital distribution profile is now reflected in consensus, the broker believes.
It is predicting a US$5 billion headwind from lower interest rates although this will be partially offset by balance sheet growth.
"However, that growth is unlikely to be anything remarkable about over the next two years," RBC said, noting HSBC's largest five geographies, which account for c.80% of revenues, are only due to experience c.1.9% average GDP growth in 2024 and 2025.
RBC pointed out HSBC has outperformed UK bank peers by 31% in the year to date and thinks now is a good time to take profits.
“Therefore, with the shares looking more fair value, we downgrade our rating to sector perform [from outperform] and reduce our price target to 775p,” the broker said – the target was 825p before.
The banking team at RBC have also taken a look at Lloyds Banking Group PLC (LSE:LLOY) and NatWest Group PLC (LSE:NWG).
It the short term, it recommends a pair of long-NatWest; short-Lloyds, highlighting a valuation gap at present.
"Over the medium-term, we retain a preference for Lloyds, given that strategic investments should continue to benefit other income and cost control, and we feel more confident on asset quality," it said.