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SCMP Reporter

Shares of HSBC Holdings fell to a 10-year low yesterday after analysts cut their target prices to as low as HK$49, saying the bank's earnings would worsen and it might have to suspend its dividend and raise more capital.
Goldman Sachs said the bank could show a loss of US$1.5 billion this year and might suspend its dividend.
It downgraded the stock to 'sell' from 'neutral'  and slashed  its price target to HK$49 from HK$77.
Royal Bank of Scotland Group also reduced its call on HSBC to 'sell' from 'hold', cutting the price target to GBP4.50  (HK$52) from #8.50,  on concerns that a global slowdown would lead to a further increase in the banking group's bad debt.
HSBC shares fell as much as 3.78 per cent yesterday in Hong Kong before recovering  to close  2.73 per cent lower at HK$64.20. The stock has fallen 14.06 per cent this week.
In London,  the stock closed down  0.54 per cent at  GBP5.44.
Raymond So Wai-man at the Chinese University of Hong Kong, said investors should not rely too  heavily on reports by brokerage houses in making their investment decisions.
'HSBC, like other financial institutions, faces difficulties  under  prevailing market conditions, but it's hard to tell whether it is as bad as analysts' expectations,' he said.
Goldman  said HSBC's earnings would mainly  be  dragged down by HSBC Finance,  its consumer finance unit, which could write off US$6.3 billion in goodwill.
It  noted that HSBC Finance could  report US$19.8 billion in losses or recapitalisation needs up to  2010, given the bearish economic outlook in the United States, and HSBC could also have a US$28 billion mark-to-market loss in its securities portfolio.
'We thus question the prudence of HSBC paying dividends in 2009, given the net loss,' Goldman said in a report. However, it expected the fourth-quarter dividend for last year to be maintained.
Goldman added that a US$17 billion recapitalisation issue would lift the bank's tier-one capital ratio to a more comfortable level.
Its move followed Morgan Stanley, which cut the London-based lender's target price to HK$52 earlier this week on fears the bank might need to raise capital and   reduce its dividend.
However, Dresdner Kleinwort upgraded HSBC to 'buy' from 'hold' and placed it in its 'core buy' portfolio again. It said a dividend cut, which it expected, was fully discounted at the current share price.
Chan Yuk-keung, a fund manager at Phillip Capital Management, said  it was hard to judge whether the suggested  prices on HSBC  were justified  given the many uncertainties.
'But the  stock will continue to be under pressure in the near term,' Mr Chan added.
Separately, Fitch Ratings last night said it revised its outlook on HSBC to 'negative' from 'stable', but affirmed its long-term issuer default rating at 'AA', to reflect heightened concerns that the rating may be downgraded over the medium-term.
It said the  global  downturn has weakened its ability to generate capital from outside the US to offset the continuing poor earnings outlook of its US consumer finance subsidiary.



HSBC falls to 10-year low on grim outlook