Morton expects Hong Kong Bank’s earnings to fall 45% next year

JPMorgan issued a report stating that the social unrest in Hong Kong has lasted for more than four months and there is no sign of easing.

The negative impact has been reflected in the deteriorating economic data such as property prices and retail consumption.

Moto conducted a stress test on the potential impact of banks in Hong Kong. The results showed that under adverse circumstances, it is estimated that the profits of banks in Hong Kong will fall by 45% and 67% in the next year and the following year, especially Hang Seng (011) and East Asia (023). Most affected. In addition, after HSBC (005) announced its quarterly results on Monday, most securities firms were bearish on their prospects.

Moto pointed out that the stress test is based on the assumption that Hong Kong property prices and retail rents fell by 30%, office rents fell by 40%, resulting in increased credit costs and risk-weighted assets of banks, and the flow of funds triggered the HKMA to enter the market to make banks’ net interest margins Narrow, but the flow of funds has not changed in the past, not because of the economic crisis, but because of the change in the concept of Hong Kong as a “safe haven", so the outflow speed is gradually and lasting. Also assume that individual bank loans have experienced a 7 to 11% decline for two consecutive years.

The results of the pressure test show that the potential profit of banks in Hong Kong will fall by 24 to 45% in 2020, and the profit in 2021 will fall by 39 to 67%, causing the bank’s return on equity to drop by 2.4 to 5.7 percentage points. The Tier 1 capital ratio (CET1) dropped 129 to 481 pips. Hang Seng is facing the biggest pressure in the industry because its portfolio is concentrated in Hong Kong dollar pricing, and only the banks under pressure from Hang Seng are East Asia, due to its profit base. Smaller.

Hong Kong dollar stocks underperformed the market

Motong forecasts that Hong Kong banks will suffer from a narrowing of net interest margin, a decrease in fee income and an increase in credit costs. The operating profit in the second half will be less than that in the first half of the year, and the deterioration will continue until next year. Given that the unknown social turmoil will end, it is expected that Hong Kong banking stocks will underperform the market in the next six to 12 months.

In addition, although HSBC’s quarterly results were less than expected, Goldman Sachs is already the most favored HSBC securities buyer, maintaining its Buy rating, with a target price of 77 yuan. Other securities firms are more bearish, with Macquarie giving HSBC a “underperform” rating with a target price of $58.6. Macquarie said that HSBC’s third-quarter results were significantly worse than expected. The exchange holding price still has a premium to the UK banks and believes that its share price will be under pressure in the short term. HSBC closed yesterday at 59.45 yuan, down 1.33%.

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