Morgan Stanley cut its price target on the shares of Royal Bank of Scotland Group PLC (LON:RBS) and Barclays PLC (LON:BARC) in a note to investors on Tuesday.
The investment bank maintained an ‘overweight’ rating on RBS but lowered its price target to 315p from 335p.
READ: RBS shares gain as Barclays and Deutsche Bank maintain 'buy' rating
Morgan Stanley reduced its net interest income (NII) growth expectations for RBS due to Brexit uncertainty. It also increased its cost of risk estimate to just over 30 basis points (bps) in 2020.
“Combined, this results in a 9% reduction in earnings per share and lower common equity tier 1 capital ratio at 15.4% 2020 vs.15.8% previously. We also use a long-term growth rate of zero to reflect poor visibility and a long-term competitive environment.”
On Barclays, Morgan Stanley repeated an ‘equal weight’ rating on the stock but reduced its price target to 210p from 225p as it lowered its earnings estimate by 5% and long-term growth rate to zero.
READ: Barclays' senior duo to meet with activist Bramson
An ‘equal weight’ rating and price target of 78p for Lloyds Banking Group PLC (LON:LLOY) were left unchanged.
Morgan Stanley analysts expect the Bank of England to raise interest rates by 50bps in 2019 and another 75bps in 2020
“They are more hawkish than the market consensus and, together with Norway, see it as the region with the most rate hikes,” it said.
“However, we believe asset spread compression will consume much of the growth in NII.
"We estimate NII to grow 0.4% for Lloyds in 2019 and 1% for RBS. Only in the case of Barclays do we expect higher 4.8% NII growth in 2019/2020, driven by legacy funding instruments being called.”