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Lloyds Banking and NatWest best placed as UK emerges from lockdown

Cost of risk is expected to fall leading to profit upgrades

Lloyds Banking Group -

Lloyds Banking Group PLC (LON:LLOY) and Natwest Group PLC (LON:NWG) are the best way for bank investors to play the UK coming out of lockdown, according to Citigroup.

The timetable confirmed by Boris Johnson yesterday is 8 March, schools restarts; 29 March, more outdoor social mixing; 12 April; non-essential retail & select hospitality reopens and 17 May most hospitality resumes.

Barclays PLC (LON:BARC) has already indicated that it expects to see a “material” reduction in 2021 losses compared to 2020 due to the improving economic backdrop.

Barclay's' current provisions include a £1.4bn management adjustment, which could now be gradually released said Citigroup.

Natwest, meanwhile, has guided for the cost of risk to fall from 88bps (basis points or 0.88%) to “at or below” 30-40bps and Citigroup said it expects similar guidance from Lloyds when it reports tomorrow.

“This is set to drive large 2021 consensus earnings upgrades, but upgrades to 2022-23 are likely to be much smaller,” said the US bank.

That might mean greater focus is placed on pre-provision profit, Citigroup added, which added it expected a dip in mortgage volumes in April and May after the stamp duty deadline ends up in March, though this might yet be extended by Chancellor Rishi Sunak.

Citigroup has buy ratings on both Lloyds, up 1.5% at 40p today, and Natwest, up 0.2% at 183.1p.

Quick facts: Lloyds Banking Group

Price: 40.075 GBX

LSE:LLOY
Market: LSE
Market Cap: £28.4 billion
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