Michael Helsby just won’t let it lie.
The Morgan Stanley banks analyst caused a stink last month when he declared that HSBC had a capital requirement of $27-42bn. Analysts at rival houses were quick to issue their own notes dismissing Helsby’s thesis – all of which were dutifully distributed by HSBC’s PRs.
But Helsby has not been intimidated. Published on Monday:
HSBC
Refreshing the capital debate + providing some clarification
Following investor debate, we wanted to refresh our thesis regarding a possible capital increase at HSBC. We have extended our analysis of the group capital position and the AFS book, and provide clarification on four issues. As a result of the additional work and clarification, we are reducing our estimated gross capital requirement to $20-35bn from $27-42bn. Over the last few weeks we have become incrementally more bearish on the outlook for profits and so continue to pencil in a $20bn capital increase in our bear case. Stay U/W.
Helsby and his team have made various alterations to their original contentious conclusions. But the MOST price target of 455p remains in place. The analysts team reckon HSBC will have had to inject $10bn of equity into its various subsidiaries in 2008, leaving a badly impaired cushion at the top of the bank’s capital structure. On top of this, falling interest rates threaten a “structural profit headwind,” the analysts say, and if yield curves stay low and flat for long “HSBC earnings would be materially impaired.”
In fact the 455p target is weighted as per the following table:
