JP Morgan has thrown down the gauntlet for UK banks as sector results season approaches, identifying Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG) as its highest‑conviction picks amid a broad target price refresh and evolving profit expectations.
In a note to clients, strategists Sheel Shah and Kian Abouhossein restated their overweight positions in Barclays and NatWest while maintaining a neutral view on Lloyds Banking Group PLC (LSE:LLOY).
The bank said forthcoming updates to medium‑term targets will be critical to re‑rate the names, particularly as investors digest return on tangible equity, net interest income trends and capital returns.
Barclays remains the top pick within the UK banks, JP Morgan said, with the team expecting the group’s refreshed guidance to clarify a path towards a 13–14% return on tangible equity in 2028.
That compares with the bank’s prior forecast of 13.4% and a consensus of 13.2%, and leaves room for the group to target the upper end of that range.
JP Morgan highlighted positive read‑throughs from recent US peer reporting, particularly in investment banking (most notably equities and debt capital markets), and in cards, which it sees as supportive for Barclays’ performance.
NatWest’s 4% year‑to‑date under‑performance, the note argued, looks unjustified. JP Morgan reiterated its overweight position and anticipates an updated ROTE target of around 18% in 2028, underpinned by robust volume growth and cost discipline.
The bank cautioned that NatWest’s cost of equity remains elevated at around 13% versus an approximate 10% sector average, contributing to its roughly 25% price/earnings discount to peers.
Lloyds, rated neutral, is expected to show a stronger net interest margin trajectory in the fourth quarter as timing effects from hedge reinvestments normalise, though fresh targets are not anticipated until the summer.
On capital returns, JP Morgan expects buybacks across the sector: Barclays and NatWest are both forecast to return about £1 billion, with Lloyds at £1.7 billion. The strategists suggested this could evolve towards half‑yearly distributions from 2027.
Reflecting its updated forecasts, JP Morgan rolled forward price targets to December 2027: Barclays at 570p, NatWest at 750p and Lloyds at 117p.