LIVE MARKETS-BofA sees upside for UK banks
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BOFA SEES UPSIDE FOR UK BANKS
Bank of America views UK banks favourably versus their European counterparts, even as interest rate cuts loom and motor finance concerns hang over the sector, and the bank has now reinstated coverage of the space.
"...we see further NII (net interest income) upside, with UK and US rate expectations revised up recently," they write in a note, adding that distributions are also expected to stay attractive and UK bank valuations are still not demanding versus European banks.
"Despite strong share price performance in 2024, UK banks are still only trading on c.6x P/E26e and c.0.9x P/TBV25e, and below European banks generating similar levels of returns."
Rate cuts may be looming, but large structural hedges will offset their impact, say the analysts, and there could be more upside in store from loan growth.
It's not all sunshine and rainbows for the space though.
"A key uncertainty hanging over the sector is regulatory risk, particularly in relation to the Court of Appeal ruling on motor finance commissions," says BofA.
They say Lloyds is the most exposed of the UK banks, although Barclays also has some exposure.
"We calculate a total potential sector redress cost range of c.£24-38bn, and model a £3bn incremental charge for Lloyds. As such, the share price reaction (c.-£6-7.5bn off Lloyds' market cap) feels like it may be overdone".
BofA has a "buy" rating on Barclays BARC.L, NatWest NWG.L, HSBC HSBA.L, a "neutral" rating on Lloyds LLOY.L and an "underperform" rating on Standard Chartered STAN.L.
(Lucy Raitano)
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