UBS: Lowering target prices for HSBC Holdings (00005) and Standard Chartered Group (02888) to maintain “neutral” ratings

The Zhitong Finance App learned that UBS released a research report saying that British banks faced narrowing interest spreads and potential tax pressure, but benefited from faster loan growth, deregulation and valuation attraction. The bank maintained a “neutral” rating for HSBC Holdings (00005) and Standard Chartered Group (02888). The target price of HSBC Holdings was lowered from HK$170.8 to HK$157, and Standard Chartered Group's target price was lowered from HK$239.1 to HK$228.

The bank pointed out that investors' attention to local banks in the UK is focused on product spreads (especially deposits) and potential tax increases, but the relevant data is stable, and the impact of tax increases is manageable and reflected in stock prices. The bank estimates that if the bank surtax is doubled, it will affect the profits of Barclays and HSBC Holdings by about 1%, and about 3% to 4% for Lloyds and NatWest. It can be offset by only increasing interest spreads on loans or deposits by 2 to 3 basis points. Policy stability is seen as a greater advantage, and may come after the October 28 budget.

The bank believes that the predicted price-earnings ratios of local banks in the UK for 2027 and 2028 are 7.7 times and 6.9 times, respectively. Compared with industry discounts of 19% and 20%, and discounts of 34% and 40% compared to FTSE 100 and Stoxx 600. The bank is optimistic about accelerated corporate credit demand, hedging earnings tailwinds and cost control performance, and expects near-end bank stock performance to be driven by factors related to oil prices, sovereign debt and artificial intelligence.

The bank maintained a “buy” rating for Barclays, Lloyds, NatWest, Paragon, Shawbrook, and Close Brothers. HSBC Holdings and Standard Chartered Group fell from a higher position of 12% to 13%. The bank believes that there is a tactical interest in improving US dollar interest rates and continuing business momentum in Asian wealth management and financial markets, but the medium- to long-term growth runway is more critical.