1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Bank plc View HSBC Global Research at:https:/ 1Q19 results were mixed as profitability was flattered by
2、 one-off items on softening top-line performance Our analysis shows that the slowdown in loans,deposits,IB,WM and TB mutes US banks profitability in the short term We reiterate our preference for Citi(only US Buy-rated name)as it is the only US bank to improve its 19FY RoTE materially Mixed 1Q resul
3、ts,despite stocks bouncing:Despite an(overall)positive market reaction,we believe that 1Q19 results were mixed.EPS was flattered by one-off items and unsustainable cost-cutting as the top line failed to emulate 2018 performance.Loans continued to grow but deposits start to soften:US loans continued
4、to grow in 1Q YoY,supported by commercial loans.Our view is that this growth will decelerate in the coming quarters.In addition,deposit growth has already slowed,and as deposit betas continue to grow,this adds pressure to the NII margin.CIB weakness less than feared but performance polarised:IB weak
5、ness was slightly less than feared,with revenues falling 9%YoY(Exhibit 21)on weaker equities trading offset by better IB fees.TBSS were slightly softer YoY as banks are facing a worsening macro environment.Overall,CIB RoE declined materially YoY(Exhibit 24),with Citi closing the gap vs.JPM and BAC.S
6、tronger WM due to tighter cost control:WM revenues were broadly flat YoY as lower management fees and transactional revenues were offset by higher NII through margins and volumes.For large domestic players,profitability improved through tight cost control.The PBT margin thus remained at record-high
7、levels(Exhibit 32),and should stay there,irrespective of the rate of top-line growth.Citi remains our preferred name:We fine-tune our earnings and TPs for US banks.As per our previous note(“When the going gets tough,the smart adapt,4th April 2019”),we reiterate Citi as our only Buy-rated US name.Unl
8、ike its US peers,it can improve RoTE through top-line growth(US cards and TB)and DTA utilisation.The c13%annual payout yield is the icing on the cake.We increase our TP to USD79(from USD76).23 April 2019 Alevizos Alevizakos*Global Banks Equity Analyst HSBC Bank plc +44 20 7005 8722 Salman Khan*Globa
9、l Banks Equity Analyst HSBC Bank plc +44 20 7999 3158 Jasdev Singh*Associate Bangalore *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations US banks Equities Banks United States Key changes to target prices Current _ TP _ _ Rating _
10、 Upside/_ 2020e _ Company Ticker Currency price Old New Old New downside Market cap(USDm)RoTE P/TBV P/E EPS change%Citigroup C.US 70.35 76 79 Buy Buy 12%162,684 12.7%0.97x 7.9 2.4%Goldman Sachs GS.US 207.90 202 201 Hold Hold-3%78,628 12.1%0.91x 7.7 0.4%Morgan Stanley MS.US 48.26 48 48 Hold Hold 0%81
11、,391 11.9%1.12x 9.0-1.2%JP Morgan JPM.US 114.30 102 104 Hold Hold-10%371,177 16.8%1.82x 11.0-0.7%Bank of America BAC.US 30.03 29 30 Hold Hold 0%287,339 15.5%1.41x 9.9 2.7%Source:HSBC estimates.Priced as of close at 17th April 2019 1Q19:More mixed than the market reaction suggests Equities Banks 23 A
12、pril 2019 2 Summary of results Large US banks finished reporting1Q19 results,beating consensus expectations(Exhibit 1).Exhibit 1:US banks results table for 1Q19 Key figures(USDm)Bank 1Q18 4Q18 1Q19 YoY QoQ Consensus _ vs.Consensus _ _ Net Revenue _ Citigroup 18,872 17,124 18,576-1.6%8.5%18,680-0.6%m
13、iss JP Morgan 27,907 26,242 29,123 4.4%11.0%28,351 2.7%beat Goldman Sachs 10,036 7,858 8,807-12.2%12.1%8,983-2.0%miss Bank of America 23,070 22,677 23,004-0.3%1.4%23,145-0.6%miss Morgan Stanley 11,077 8,548 10,286-7.1%20.3%9,818 4.8%beat _ Non-Interest Expense _ Citigroup-10,925-9,893-10,584-3.1%7.0
14、%-10,675-0.9%miss JP Morgan-16,080-15,720-16,395 2.0%4.3%-16,659-1.6%miss Goldman Sachs-6,617-5,351-6,088-8.0%13.8%-6,217-2.1%miss Bank of America-13,842-13,074-13,224-4.5%1.1%-13,661-3.2%miss Morgan Stanley-7,657-6,691-7,331-4.3%9.6%-7,168 2.3%beat _ Provisions _ Citigroup-1,857-1,925-1,980 6.6%2.9
15、%-2,063-4.0%miss JP Morgan-1,165-1,548-1,495 28.3%-3.4%-1,487 0.5%beat Goldman Sachs-140-222-224 60.0%0.9%na nm nm Bank of America-834-905-1,013 21.5%11.9%-1,009 0.4%beat Morgan Stanley-19-9-27 42.1%200%na nm nm _ PBT _ Citigroup 6,090 5,306 6,012-1.3%13.3%5,902 1.9%beat JP Morgan 10,662 8,974 11,23
16、3 5.4%25.2%10,301 9.0%beat Goldman Sachs 3,419 2,507 2,719-20.5%8.5%2,595 4.8%beat Bank of America 8,394 8,698 8,767 4.4%0.8%8,503 3.1%beat Morgan Stanley 3,420 1,857 2,955-13.6%59.1%2,724 8.5%beat _ Net Income _ Citigroup 4,348 4,000 4,448 2.3%11.2%4,253 4.6%beat JP Morgan 8,238 6,640 8,753 6.3%31.
17、8%7,688 13.9%beat Goldman Sachs 2,737 2,121 2,182-20.3%2.9%1,972 10.6%beat Bank of America 6,490 7,039 6,869 5.8%-2.4%6,495 5.8%beat Morgan Stanley 2,575 1,361 2,336-9.3%71.6%2,006 16.5%beat Source:Company Releases,Bloomberg We note that MS(+17%),JPM(+14%)and GS(+11%)produced material net income bea
18、ts vs consensus.1Q19 wrap-up 1Q19 results were mixed as profitability was flattered by one-off items as top-line growth failed to emulate prior years performance Our analysis shows that the slowdown in loans,deposits,IB,WM and TB will likely mute US banks profitability in the short term We reiterate
19、 our preference for Citi(only US Buy-rated name);it is the only US bank likely to improve its 19FY profitability 3 Equities Banks 23 April 2019 Ranking US banks based on 1Q19 As part of our Q1 wrap-up,we look in detail at the performance of some of the underlying businesses:(a)loan and deposit growt
20、h,(b)credit cards,(c)investment banking(IB),(d)transaction banking&securities services(TBSS)and(e)wealth management(WM).Our findings are summarised in Exhibit 2.Exhibit 2:US banks 1Q19 performance summary per business Loans Deposits Credit cards IB TBSS WM BAC Neutral Strong Weak Weak Strong Strong
21、CITI Neutral Strong Neutral Strong Strong GS Weak JPM Strong Neutral Strong Neutral Neutral Neutral MS Weak Strong Source:HSBC estimates We rank the US banks in relative order of 1Q performance below:JPM(1st)the group continued to gradually increase its loan balances,with especially strong performan
22、ce in credit cards(in terms of both receivables and purchase volumes).The group also reiterated its target to report NII of+USD58bn(we have USD58.2bn on a managed basis)for 2019FY.IB performance was better than feared,albeit RoE declined materially on higher equity allocation,while treasury and secu
23、rities services slowed due to currency and funding pressure.Importantly,JPM managed to grow its revenues YoY,unlike the competition,boosted by strong CCB(Consumer&Community Banking)performance.On the negative side,asset&wealth management performance was subdued with the PBT margin falling 200bps;Cit
24、i(2nd)in our view,Citi reported resilient results with strong performances in key wholesale businesses,including treasury services(+10%YoY revenues in constant currency)and IB(flat YoY).In addition,strong deposit growth(considering the much smaller branch footprint)highlighted the success of the gro
25、ups digital initiatives.We note that top-line growth was slightly down YoY(-2%),but this was a good performance given that the USD strengthened YoY.In addition,the group updated guidance for the CECL(Current Expected Credit Losses)impact being c20-30%current loss allowances reserve inflation was sli
26、ghtly negative.This is higher than the previous 10-20%company estimate;MS(3rd)we were negatively surprised by the groups weak IB revenues,especially IB fees(-24%vs.-1%for the market),albeit we note that the group guided towards a healthy pipeline(i.e.it could be a timing thing).On the positive side,
27、wealth management improved its profitability due to lower non-comp expenses,maintaining the PBT margin above 27%(the range remains at 26-28%).Management highlighted the strong Asset Management performance,albeit this was due to a“lumpy”performance fee amount.As such,we are unsure about the sustainab
28、ility of the earnings;BAC(4th)we were impressed by the strong deposit growth and relatively low deposit beta(see below).BAC reiterated its NII target of+3%(we have+2.7%)for 2019FY,but the market appears to be somewhat sceptical.On other divisions,treasury services(+10%YoY)demonstrated very strong re
29、venue growth.In addition,WM profitability improved despite lower brought-forward AUM,as costs declined materially.However,slowing loan growth trends are worrying,also reflected in the softer credit card performance.Finally,the business continues to lose market share in global markets,posting another
30、 underwhelming quarter;GS(5th)weak IB performance as trading business(especially equities)failed to capitalise on low-volatility markets,with the M&A franchise being(again)the key positive.The Group overly(in our view)advertises the increased importance of NII(+52%YoY due to consumer We believe that
31、 JPM reported the best relative results;Citi also reported resilient numbers Equities Banks 23 April 2019 4 finance,wealth management loans and corporate loans),but overall Investing&Lending revenues were still down 14%YoY.Investment management was impacted by a lower AUM base,as incentive fees were
32、 lower YoY and the management fee margin also declined(-2bps YoY).The CET1 capital increase(+30bps QoQ)was a positive development.In Exhibit 3,we record the relative stock performance of US banks since the beginning of the reporting season(i.e.the day before JPM results up to 18th April 2019),vs.the
33、 absolute 6M performance as of 12th April 2019.We note that the market seemingly agrees with our view that both JPM and Citi reported strong results,and that BAC and GS results were relatively underwhelming.However,it appears that the market considered MS 1Q19 performance to be very good(+8.6%vs.3%f
34、or the index),whereas we disagree.We note that MS also is the best performing US bank that we cover on a 6M basis.Exhibit 3:US banks stock performance 7-day vs.6M Source:HSBC,Bloomberg,Data correct as of 17th April Investment thesis we prefer Citigroup Post 1Q results,we fine-tune our earnings and T
35、P for the US banks.Since the stocks have bounced,we now have TP downside for GS and JPM.We reiterate our Buy-rating on Citigroup.Citi(Buy;TP USD79)Citi is our top and only Buy-rated US pick.We estimate that Citi can improve its RoTE through improved transaction banking and securities services,higher
36、 US credit card revenues(boosted by lower promotional balances),above-average deposit growth(as the company is starting to penetrate its credit card clientele for new current accounts/deposits)the utilisation of deferred tax assets(in excess of USD10bn as of 1Q19).We reiterate our Buy rating with a
37、higher TP of USD79(from USD76)(+12.3%implied upside)derived from our 2020e WEV valuation.Our Buy rating is supported by a c13%payout yield for 2019-21e per annum in the form of stock repurchases and ordinary dividends GS(Hold;TP USD201)We recognise that the group has invested in a plethora of exciti
38、ng new areas,including consumer finance&digital credit cards(see“Focusing on Apple Card,4th April 2019”),robo-advisory and cash management.However,the tangible results of these investments will not become visible in the groups financials in the short term.We estimate that the groups RoTE will be und
39、er pressure in 2019,and is likely to decline c300bps YoY as:(a)IB trading revenues are muted and(b)2019e is the peak year for overall investment spend.We reiterate our Hold rating with a lower TP of USD201(from USD202)(-3.3%implied downside)derived from our 2020e WEV valuation.8.5%7.4%2.4%8.6%3.3%3.
40、0%-10%-8%-6%-4%-2%0%2%4%6%8%10%JPMCITIGSMSBACKBW Index7-day performance6M performanceCiti remains our only Buy-rated US name 5 Equities Banks 23 April 2019 MS(Hold;TP USD48)despite common belief,MS is a high-beta name,with c75%of revenues coming from asset gathering and equities trading.In previous
41、years,this mix has been advantageous.However,we believe that future growth will be slower,given lower equities trading activity and muted market growth.We forecast a lower RoTE of 12.1%for 2019FY(-130bps YoY),with the stock trading at 1.12x TBV and 10 x P/E for 2020e,which looks appropriate.We reite
42、rate our Hold rating with a TP of USD48(c1%implied upside)derived from our 2020e WEV valuation.JPM(Hold;TP USD104)JPM is the most diversified US-bank in terms of business mix.However,our economists forecast US slowdown is likely to cap the growth in consumer,community and commercial banking,despite
43、new initiatives.As such,we anticipate RoTE to plateau at around 2018FY levels(c17%),which is still the best performance among the US top-5.However,the stock is already trading at 1.82x TBV and 11x P/E 2020e,which looks appropriate.We reiterate our Hold rating with a higher TP of USD104(from USD102)(
44、9.9%implied downside)derived from our 2020e WEV valuation BAC(Hold;TP USD30)We forecast a c15.5%2020e RoTE,with the stock trading at 9.9x and 1.4x 2020e P/E and P/TBV,and supported by a high payout yield(c100%payout in dividends and buybacks)of c9%per annum.We believe that RoTE largely peaked in 201
45、8,and expect it to stagnate through to 2021e based on a)slowing loan growth and margin contraction(as the Fed initially freezes rates before loosening in 2020e and the deposit war intensifies),b)a shrinking IB wallet,and c)deceleration in WM top-line growth.Our EPS estimates are 4%and 8%below Bloomb
46、erg consensus for 2020e-21e.We reiterate our Hold rating with a higher TP of USD30(from USD29)(zero implied upside)derived from our 2020e WEV valuation.Exhibit 4 shows the valuation map for our Global wholesale bank franchise,post-US results.We note that JPM and MS look over-priced,with BAC fairly-p
47、riced,and GS and Citi slightly under-priced.Exhibit 4:Global wholesale banks valuation map 2020e Source:HSBC estimates,Refinitiv Datastream,Note:Pricing data as of 17th April 2019 Exhibit 5:HSBCe EPS changes(USD)2019-21e _ FY19e _ _ FY20e _ _FY21e _ Bank New Old%New Old%New Old%Citigroup 7.62 7.48 0
48、.6%8.94 8.53 2.4%10.48 9.90 5.8%Goldman Sachs 21.68 24.99-13.3%26.86 26.75 0.4%30.62 29.28 4.6%JP Morgan 10.07 9.90 1.7%10.48 10.55-0.7%11.07 Bank of America 2.88 2.81 2.5%3.04 2.96 2.7%3.13 3.02 3.7%Morgan Stanley 4.91 4.57-6.8%5.38 4.85-10.0%5.75 5.27-8.2%Source:HSBC estimates BACJPMCITIGSMSCSDBKU
49、BSBARCBNPR=0.83540.00.20.40.60.81.01.21.41.61.82.02%4%6%8%10%12%14%16%18%PTBV(2020e)ROTE(2020e)Equities Banks 23 April 2019 6 Loan and deposit growth resilience against all odds The first quarter continued to show resilient loan and deposit growth for US banks.However,we maintain our view that a slo
50、wdown in the US economy is imminent as we see weaker spending signs becoming more obvious.HSBC economists forecasts suggest challenging years for US GDP growth in 2019e and 2020e(“Global Economics Q2 2019:Poised for slower growth,April 2019”).Specifically,our economists expect GDP growth to decelera