HSBC Shares Cut by JPMorgan on U.S. Lending, Hong Kong Margins

Source: Bloomberg

Shares of HSBC Holdings Plc, Europe's biggest bank by market value, were downgraded by analysts at JPMorgan Chase & Co., who cited concerns on U.S. lending and a possible peak in margins at the company's Hong Kong division.

"Mortgage weakness has started to spill over into unsecured credit,'' in the U.S., said analysts led by Sunil Garg in Hong Kong in an e-mailed statement today. "This could worsen and be a continuing source of earnings downgrades.''

The analysts reduced the London-based bank's shares to "neutral'' from "overweight'' and lowered their earnings estimates by 3 percent for 2006, 7.5 percent for 2007 and by 5 percent for 2008.

U.K. consumer credit is "showing continued weakness'' and lending margins in the bank's Hong Kong division also carries "considerable downside risks,'' said the analysts, who also reduced their 12-month target price for HSBC shares by 7 percent to 152 Hong Kong dollars ($19.50).

Acquisitions, which the bank could fund by drawing on an estimated $18 billion of surplus capital, and better-than- expected improvements in U.S. and U.K. credit, may help counter slower earnings growth, the analysts said.

JPMorgan's downgrade follows a downgrade of HSBC stock to "sell'' from "hold'' by analysts at ABN Amro Holding NV on Jan. 4, who also said U.S. bad debts would erode earnings growth. (By Ben Livesey)

Editor: Carrot Chan