Lloyds Bank remains the pick of the UK banks at Citibank, though the broker admits the benefits of higher interest rates have yet to prove the boon it expected.
In fact, it says for much of the year, higher interest rates have been regarded as negative, as illustrated by the inverse correlation between share prices and base rates.
“This has been a function of a higher cost of equity, slowing economic output (although this has proved more resilient than initially expected) and rising deposit betas.“
But with interest rates close to peaking and “cuts probable” from mid-2024, past experience suggests with bank stocks so heavily derated better-than-expected returns might spark a revival over time.
In order of preference, Citi ranks the banks Lloyds Banking Group PLC (LSE:LLOY), HSBC Holdings PLC (LSE:HSBA), NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC), which are all 'buys', with Virgin Money UK PLC (LSE:VMUK) a 'weaker buy' and Standard Chartered PLC (LSE:STAN) at 'neutral'.