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Lloyds the top UK pick as Morgan Stanley upgrades European banks

Lloyds, Santander, and Unicredit were picked as winners, after impressing Morgan Stanley with their profitability, cost efficiency, and clear capital plans

Lloyds Banking Group -
Lloyds' latest results showed a strong balance sheet and lower overheads

Lloyds Banking Group PLC (LON:LLOY) is the top pick among the British banks, Morgan Stanley said as it upgraded its rating on the whole European banking sector.

European banks are now ‘attractive’, the investment bank said in a note to clients on Tuesday, upping its rating from ‘in-line’ as it now expects that there will be no further cuts to interest rates and sees more stability in the economic outlook.

READ: Lloyds "attractively valued" says UBS even after cutting targets

Morgan Stanley reiterated its ‘overweight’ rating on Lloyds in the sector, reflecting the UK bank’s cost-cutting, clarity on capital plans and improving profitability.

In September, Lloyds showed off a strong balance sheet, with net resources up and the operating expense ratio reducing thanks to lower administrative expenses, which near quadrupled pre-tax profits to £2.3bn.

“Confidence in earnings expectations bottoming in 2H19 has grown” across the sector thanks to low interest rates, the analysts said, forecasting only around 1% growth in earnings over the next two years.

Nevertheless, the analysts stayed optimistic and said they “watch for the recalibrating of business models against a shallow credit cycle”, also citing Unicredit, Santander alongside Lloyds as banks with the best potential.

Shares in Lloyds were lifted 1% to 60.4p by lunchtime on Tuesday.

Quick facts: Lloyds Banking Group

Price: 61.47 GBX

LSE:LLOY
Market: LSE
Market Cap: £43.06 billion
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