Sell Lloyds Banking Group PLC (LON:LLOY), buy Royal Bank of Scotland PLC (LON:RBS) is Goldman Sach’s view today in its latest update on the UK banks.
The theme is that competitors are encroaching on the four major’s traditional stamping ground, especially mortgages where ring-fencing and the newly introduced term funding scheme provide a strong incentive for some banks to substantially increase their exposure.
Lloyds (Sell) is most exposed to this trend, says Goldman as it the largest mortgage lender in the UK and has a significantly higher pricing point.
There is a risk of an accelerated erosion of its mortgage book and ultimately Lloyds will have to close the current pricing gap with the rest of the market.
RBS, in contrast, should be able to offset the bulk of margin pressure with strong loan growth.
The broker also notes that challenger growth momentum continues with robust volume growth the standout feature in the recent results round with Virgin Money (LON:VM., Shawbrook (LON:SHAW) and MetroBank (LON:MTRO all maintaining new lending levels at or in excess of our expectations.
Goldman Sachs has a target price of 50p on Lloyds and 225p on RBS against today’s market prices of 61.6p and 210.4p respectively.