Lloyds Banking Group PLC (LSE:LLOY)'s share price could double in a bull case scenario prepared by Morgan Stanley (NYSE:MS).
The investment bank has moved the lender to 'overweight' from 'equal weight' with an increased base case price target of 64p, up from 60p.
But it set out a bull case price target of 85p - double the current share price - which assumes terminal rate at 3.25% with mortgage spread front books stabilising at 85 basis points in 2022-24.
Front book is the term that banks use to refer to new mortgage customers, while back book refers to those previously acquired, so the spread is essentially the difference.
The broker said Lloyds is a cash-generative business, thinks pricing pressures are "manageable" and despite higher costs, predicts stronger mortgage flows and lower provisions.
This drives the bank's 13.5% return on total equity expectation for 2024, it said.
Morgan Stanley (NYSE:MS) forecasts around 25-30 basis points cost of risk going forward, factors in dividend per share growing to 3p in 2024, with £2 billion annual buybacks.
This would leave the CET1 ratio at 14.4% by the end of 2025, in line with management guidance, it said.
Shares bucked the weaker market, rising 0.7% to 42.36p.