Lloyds Banking Group PLC’s (LON:LLOY) share price target has been cut by Deutsche Bank, which remains cautious about the sector.
The UK’s biggest lender saw its price target cut to 32p from 34p by the German bank’s analysts in a note to clients on Monday.
“We remain cautious on UK banks and prefer banks with less rate sensitivity, more diverse income, flexible cost bases and at lower valuations,” the analysts said.
As a result, Barclays PLC (LON:BARC) and Virgin Money UK PLC (LON:VMUK) both remain ‘buys’ and are preferred over Lloyds and NatWest Group PLC (LON:NWG), which remain a ‘hold’ and a ‘sell’ respectively.
The analysts said “excess liquidity increases rate sensitivity of UK banks” and suppresses the lenders’ net interest margins “while there is still risk of rate cuts”.
While the banks can all boast resilient asset quality and higher coverage ratios, which the analysts said are all welcome, “unemployment is too uncertain to materially change the outlook”.
Among the global banks, Deutsche prefers Standard Chartered PLC (LON:STAN), still kept at ‘hold’ with a price target of 415p, over HSBC PLC (LON:HSBA), which remained a ‘sell’ with a target of 300p.
Most sector analysts have given their thoughts on the sector in the past couple of weeks, with Citi on Friday agreeing that the sector’s greatest sensitivity is to unemployment.
Every single percentage point increase in unemployment rate “could add circa 8% to banks’ 2020-21 cumulative loan losses”, Citi analysts said, which they suggested, “seems to imply downside risks are manageable, especially given stronger 2Q20 capital ratios”.
In contrast to Deutsche, Citi does not fancy Barclays, seeing it at most at risk of additional charges, whereas Natwest “appears to have adopted the most prudent approach”.
Berenberg agreed that NetWest was the best positioned of the UK cohort to absorb loan losses and restart capital distributions, but also had ‘buy’ ratings for Barclays and StanChart.