HSBC downgrades Audi rating to ‘neutral’

HSBC downgraded its rating on Bank Audi’s stock to “Neutral’ from “Overweight,” but maintained its “Overweight” rating on the stock of BLOM Bank. It also maintained its target price for BLOM Bank’s shares at $10.1 and reduced its target price for Bank Audi’s shares to $6.5 from $8.10. HSBC cited three reasons for preferring the stock of BLOM over Audi. First, it considered that pre-provision income was more sustainable at BLOM because of the bank’s better earnings quality and cost efficiency. It noted that non-interest income was 40 basis points of average assets at BLOM compared to 80 bp at Audi. It added that BLOM operates more efficiently, with a cost-to-assets ratio of 1.2 percent relative to 1.7 percent at Audi. Second, it indicated that BLOM’s capital position is better than Audi’s. It noted that both banks had identical capital adequacy ratios of 13 percent in 2008, but added that BLOM had generated better profitability and paid lower dividends than Audi, therefore conserving its capital position.