Following HSBC's disappointing yet expected first-half results, securities houses have kept the bank's target prices and ratings unchanged.

In a research note, JPMorgan said that HSBC's first-half earnings had met estimates.

However, the second-half outlook for the bank remains uncertain." The credit trends in the US remain weak. Underlying trends in the second half are expected to weaken in Europe and the US," JPMorgan's analyst Sunil Garg wrote.

According to JPMorgan, the sharp increase in charge-offs at HSBC Finance Corporation (HFC) underscores credit problems.

"HFC is likely to entail more losses and will require re-capitalization," the research note said.

JPMorgan estimates that HFC has a negative value and on this basis, HSBC trades at a premium to its sum of parts. The house retains HSBC's "underweight" rating, and keeps its target price at HK$110 unchanged. Shares in HSBC closed at HK$126.6 on Tuesday, dropping over 2 percent after Monday's result announcement.

HSBC's Hong Kong operation was quite disappointing in the first half with net profit down 4.5 percent. JPMorgan said that HSBC had clearly lost market share in Hong Kong.

Commenting on HSBC's first half result, Goldman Sachs said: "The numbers were decent to good," with first half net profits down 29 percent year-on-year and 6 percent half-on-half to $7.7 billion.

Goldman Sachs, however, said the lender was starting to stabilize in the first half as the asset quality and the P&L were improving.

The house maintained HSBC's 12-month target price at HK$150, and the "buy" rating.

However, Goldman Sachs notes some key risks, including slowdown in Hong Kong as well as Asia and the UK. Also, the continued sharp fall in US property prices may lead to more non-performing loans.

(HK Edition 08/07/2008 page3)