HSBC Has Been Removed From Goldman Sachs' Conviction Buy List: Here's Why

In a report published Tuesday, Goldman Sachs analyst Martin Leitgeb downgraded the rating on

from Buy to Neutral, while also removing the company from the Pan-Europe Conviction Buy List. The price target was reduced to 690p. "Our investment case on HSBC was predicated on a strategic shift towards (1) geographic streamlining and (2) meaningful IB cuts. After analyzing the 255 pages of investor update materials, we conclude that HSBC delivered on select aspects, but fell short on others," Leitgeb explained. The analyst believes that the company was successful in delivering the magnitude of RWA cuts, alleviating concerns regarding its "progressive dividend policy." However, the RWA have not specified which sub-scale IB businesses the company intends to exit. For now, there appear to be substantial execution and revenue attrition risks. According to the Goldman Sachs report, "HSBC plans to dispose of Brazil and Turkey, but closed the door on other geographies. We see this as a missed opportunity – exiting other sub-scale retail businesses is key to higher returns." The analyst believes that an additional strategic shift could potentially unlock meaningful upside, although such a shift is not expected in the near term. "HSBC delivered on select aspects, but fell short on others, most notably on the potential for streamlining its sub-scale retail businesses, which we continue to see as key in addressing group returns," Leitgeb added.