Last year was “annus horribilis” for European banks, Deutsche Bank said as it cut its target price on Lloyds Banking Group PLC (LON:LLOY), Barclays PLC (LON:BARC) and Royal Bank of Scotland Group PLC (LON:RBS).
Deutsche Bank said while return on tangible equity expectations was broadly stable at 10%, the sector price to tangle book value ratio fell to 0.8x from 1.1 x, marking a 30% de-rating.
“The sector is currently pricing in a 100% recession probability,” the investment bank noted.
“Our house view does not factor a recession until late-2020 although there are a number of geopolitical risks that could derail this - including the US-China trade war, Brexit, and Italy.”
Deutsche Bank maintained a ‘buy’ rating on Lloyds, Barclays and RBS but lowered its target price on the three stocks.
It slashed its target price on Lloyds to 68p from 77p, cut RBS to 276p from 300p and reduced Barclays to 207p from 243p.
Worries about the potential impact of Brexit on the financial sector have weighed on the shares of the UK’s biggest lenders.
In the past 12 months, Lloyds has shed 22% of its value while Barclays and RBS have both lost 24% of their value.
Parliament is due to vote on Prime Minister Theresa May’s Brexit deal on Tuesday. However, MPs are widely expected to vote against the plan, increasing the risk the UK will fall out of the European Union without a deal on March 29.
The Bank of England has warned that a no-deal Brexit could send the pound plunging and trigger a worse recession than the financial crisis. The central bank estimates gross domestic product would fall by 8% in 2019.