WHAT THE BROKER SAYS
Smith Barney has a 'sell' recommendation on HSBC saying the bank is not making its rating and has failed to deliver superior operating profit growth compared to other European banks.
With costs building and margin pressures evident in key areas the broker sees little change soon. The continued negative investment case is driven by three factors.
Firstly, the operational performance of the group remains lacklustre, with an apparent inability to generate revenue growth in excess of cost growth. This is in part a function of the group's geographic footprint, with a dominant proportion of its earnings derived from the mature markets of Britain, Hong Kong and New York.
Secondly, the broker is unconvinced of the group's merger and acquisition record, saying the addition of US consumer finance group Household International in 2003 has disappointed.
Finally, it is believed the substantial valuation premium the group enjoys over its peer group is unjustified.
After HSBC underperformed the British equity market 8 per cent last year, the broker retains a 3M (sell/medium risk) recommendation and lowers its target from 775p to 750p. The counter closed at 836p on Friday.