NEW YORK (TheStreet) -- Credit Suisse analyst Amit Goel sees a good upward trajectory for HSBC's (HSBC) profit before tax over the next few years, but the analyst on Wednesday cut his rating for the stock all the way to "underperform" from "outperform."
HSBC's stock closed at 597.90 pence on the London Stock Exchange Tuesday.
Goel lowered his price target for the shares to 580 pence from 780, while cutting his operating earnings estimates by "11%/12%/14% for 14E/15E/16E."
The stock was down 1% in Wednesday afternoon trading in London, to 594.50 pence, while HSBC's American depositary receipts were down 0.6% in early trading on the New York Stock Exchange, to $49.54. The ADRs closed at $49.83 Tuesday, down 8% this year.
"Whilst we still see strong capital generation, we no longer expect significant additional capital return in the next 24-36 months," Goel wrote in a detailed research report.
The main reason for the analyst's discouragement is what he calls "UK regulatory inflation," leading to an ultimate Basel III Tier 1 common equity ratio requirement of "10.7-13.2% before any management buffer or sectoral capital requirements." In comparison, major global banks headquartered in the United States are targeting Basel III Tier 1 common equity ratios of 9.5% to 10%.
The ever-rising capital bar for HSBC will make it very difficult to hit the 12% to 15% return on equity target range laid out by the bank's management in 2011. This translates to a return on tangible equity goal of 15% to 19%, according to Credit Suisse.