Regulation of the UK banks is likely to step a notch next week when the Bank of England issues its latest financial stability report.
The possibility has prompted US broker Goldman Sachs to reiterate its sell stance on Lloyds Banking Banking Group PLC (LON:LLOY) and Barclays PLC (LON:BARC) while HSBC (LON:HSBA) and Royal Bank of Scotland PLC (LON:RBS) are holds.
Goldman expects the buffer held against a deterioration in the UK credit cycle to rise to 0.5% from zero currently, while consumer credit reviews currently underway may see a tightening of capital requirements.
Though it is in mortgage risks assessment that the most immediate impact may be felt.
“In our view it could have a capital impact of between 10 basis points (0.1%) for Barclays and 80 bp (0.8%) for Lloyds.”
Even ahead of that possibility Goldman remains cautious on Lloyds (target price 58p).
The bank is the largest mortgage lender in the UK and the prospect of increased competition and its impact on future margins are not in the price, the US broker says.
Barclays, too, is a sell as the broker believes its need to rebuild its capital position will affect both dividends and profits going forward. The target is 180p.
Standard Chartered PLC (LON:STAN) is its only buy in the UK bank sector and this due largely to it being outside the UK credit cycle with its Asian focus. Target price rises to 960p from 950p.