Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Bank swaps: Morgan Stanley upgrades RBS, downgrades both Lloyds and Barclays

The US investment bank raised its stance on RBS to ‘overweight’ from ‘equal-weight’ with an increased target price of 330p from 265p, with the shares trading at 288.6p
RBS sign
Meanwhile, both Lloyds and Barclays’ saw their ratings cut back to ‘equal-weight’ from ‘overweight’ by Morgan Stanley

Royal Bank of Scotland Group PLC (LON:RBS) topped the FTSE 100 leader board in late morning trading, boosted by an upgrade from Morgan Stanley in a review of the UK banking sector which also saw them downgrade both Lloyds Banking Group PLC (LON:LLOY) and Barclays PLC (LON:BARC).

The US investment bank raised its stance on RBS to ‘overweight’ from ‘equal-weight’ with an increased target price of 330p from 265p, with the shares trading at 288.6p, up 8.1p or 2.9% on last night’s close.

READ: RBS has reportedly agreed the sale of Lombard Finance's offshore leasing business for £150mln

Meanwhile, both Lloyds and Barclays’ saw their ratings cut back to ‘equal-weight’ from ‘overweight’ by Morgan Stanley, with their targets reduced to 75p from 80p and 215p from 230p, respectively.

Lloyds shares slipped 0.02p lower to 68.38p, while Barclays shed 1.1%, or 2.2p at 199.6p.

In the note to clients, the Morgan Stanley analysts said: “We believe RBS offers better earnings visibility vs. peers as market share wins in mortgages will make it less vulnerable to ongoing asset spread compression in the segment.”

They added: “At the same time, substantial deleveraging in its corporate book and less exposure to consumer should see more resilient asset quality performance if macro were to deteriorate.”

The analysts also estimate that, with a lower increase in capital requirements than its peers, RBS could afford share buybacks equivalent to 15-20% of its market cap over time on top of dividend payments.

Litigation risks remain

They said litigation costs remain the biggest risk in 2018, with RBS expected to settle with the US Department of Justice on mortgage-backed securities mis-selling soon, with Morgan Stanley factoring-in a £2.5bn provision top-up in the fourth quarter of 17, which is the average of the fines it has tracked.

For Lloyds, the analysts said that, despite higher capital requirement, it is more optimistic on the margin outlook than consensus; however, with the stock trading at 1.3 times estimated tangible book value they see less room for a re-rating.

For Barclays, the analysts said they believe investors would need to assume £750mln-£1bn higher market revenues versus the bank’s estimates to buy the stock - 20% upside.

View full RBS profile View Profile

Royal Bank of Scotland Timeline

Related Articles

1524578583_cannabis-plants.jpg
April 24 2018
Redfund is positioning itself to become a top-tier cannabis incubator and accelerator

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use