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The global economic revival may be suffering a bit of a wobble at the moment, but when it does finally get under way HSBC, Europe's biggest bank, will be best placed to make the most of it.
That, at least, is the view of Goldman Sachs, which has raised its rating on the lender from neutral to buy while jacking up its target by a whopping 340p to 820p.
The American broking house says HSBC is “highly geared to a global recovery due to the absence of significant drag from US consumer credit losses”.
HSBC was quick to learn from its foray into subprime lending with the £10 billion purchase of the American consumer-credit business Household in November 2002.
Within months things had started to turn sour for the lender. Five years later in February 2007, it sparked the banking meltdown with write-offs running into hundreds of millions of pounds as many of Household's 50 million customers began defaulting on their loans.
But HSBC never had to resort to tapping UK taxpayers for money. Instead, it went cap in hand to shareholders for £12 billion in order to strengthen its balance sheet.
Household has been dealt with and the group is now focused on its international base. The shares responded to Goldman's re-rating with a rise of 12.3p at 650.1p, which compares with the 304p they were changing hands at in March, when it passed around the hat.
Goldman is also a big fan of Standard Chartered, 25p dearer at 1387p, another bank which is particularly big in Asia. It continues to rate the shares a buy and has lifted its target from 1400p to 1600p.
Banks on the whole were trading a touch firmer for choice with the exception of Barclays, which gave up an early lead to trade 3.4p down at 343.5p, while Lloyds Banking Group firmed 0.5p to 95.5p and Royal Bank of Scotland put on 0.5p at 45.4p.
Shares generally were also looking to repair the damage of the past few days, but they struggled to hold their best levels. The FTSE 100 index touched a high for the day of 4688 before seeing its lead pared back to 17.36 at 4662.37. The latest inflation numbers came as something of a surprise, holding steady at 1.8% when most economists had been predicting a fall. On Wall Street the Dow Jones rallied 58.64 to 9193.98.
The rally was curtailed by a surprise drop in US producer prices and the worst new housing starts for two years.
Again the miners, which boast a heavy weighting in the Footsie, led the charge first thing, although they could not sustain it. They were helped by forecasts that raw materials prices will continue to be driven steadily higher. Rio Tinto jumped 38p to 2283½p after receiving an offer of $2.02 billion for the majority of its Alcan Packaging subsidiary from Amcor. Rio has been forced to make disposals to reduce its high level of debt. There were also gains for Xstrata, up 16p at 758p, Eurasian Natural Resources, 14p to 772½p and Kazakhmys, 8p to 871p.
British Land was on the slide again, losing 18.1p at 478.1p despite first-quarter results which saw it maintain the payout to shareholders at 6.5p a share. The share price touched 513p last week on talk of a takeover by a sovereign wealth state.
Mears Group continues to deliver the goods. The social housing services group and home care supplier saw operating profits grow 18% in the first half with revenues up 14% to £233 million.
Contracts worth £400 million were achieved in the first half, stretching the order book to
£1.8 billion. Shareholders will receive an interim payout of 1.6p, an increase of 19% on last year. The shares touched 277p before reversing with a loss of 5¼p at 266p. Investec Securities says: “The bid pipeline remains very strong and we reiterate our view that Mears is exposed to substantial growth prospects in markets where spend is largely non-discretionary.”
Dominion Petroleum has returned from a six-week suspension 1.1p higher at 7.5p. It follows completion of a $10 million cash injection and publication of its accounts. It is drilling in the Albertine rift system straddling western Uganda and the Democratic Republic of Congo, which has seen a series of discoveries in the past 18 months.
AIM-listed oil and gas explorer Ascent Resources rose 1¼p to 7p after starting to drill the Görbeháza-1 well, located in the western part of the Nyírség Szatmár permits in Hungary.
