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Lloyds Banking gets upgrade ahead of interims, while NatWest get downgraded

Analysts at Credit Suisse also upgraded Standard Chartered but left their rating unchanged for Barclays

Lloyds Banking Group -

Lloyds Banking Group PLC (LON:LLOY) has been upgraded and newly renamed NatWest Group PLC (LON:NWG) was downgraded by Credit Suisse ahead of half-year results next week that will show how the coronavirus pandemic is affecting lending.

In a preview of the sector ahead of a busy results season week, including four of the FTSE 100’s banks, there was also an upgrade for Standard Chartered PLC (LON:STAN) but Barclays PLC (LON:BARC) was left untouched.  

Second-quarter results from the US banks are likely to have set the tone for the London-listed lenders, with lower loan margins, a strong investment banking performance and higher provisions for loan losses after the main street banks took an additional US$33bn in charges to cover possible bad loans in the past quarter, the highest number since the wake of the (previous) financial crisis.

Credit Suisse analyst Jon Peace lifted his recommendation for Lloyds to ‘outperform’ from ‘neutral’ with the share price target remaining at 40p potentially offering more than 30% upside from the previous close price of 30.32p.

Lloyds will publish half-year results next Thursday, having revealed earlier this month that chief executive António Horta-Osório plans to depart the lender next year.

Britain’s biggest lender was in the news last month after being hit with a £64mln fine last month for the way it dealt with customers falling behind on mortgage payments, while there were also reports that it was eyeing further expansion into the private client sector.  

In April’s first-quarter results, Lloyds profits plummeted 95% to £74mln after it took a £1.4bn write-down in preparation for bad loans resulting from the coronavirus crisis along, plus other charges relating to existing restructuring plans and negative insurance volatility from falling equity markets and widening corporate bond credit spreads.

StanChart, which also reports interims on Thursday was also upgraded by Credit Suisse to ‘neutral' from ‘underperform’, with its target price upped to 480p from 395p.

The Asia focused bank, which was one of the first in the sector to warn of the effects of the virus back in September, saw profits fall a relatively benign 12% in the first quarter, as income increased on higher volumes in financial markets and offset lower interest income.

Chief executive Bill Winters’ future may be more assured now that the bank is one of the better performers in the sector, after doubts surfaced early in the year.

Looking at NatWest, the analyst downgraded the shares to ‘neutral' from ‘outperform’, with the target price trimmed to 140 from 175p.

Friday will see the results under the new name for RBS and newish chief executive Alison Rose will not want to blot her copybook too early. 

Analysts expect a significant increase in corporate borrowing, driven by government initiatives to help smaller businesses, with a likely fall in consumer lending.

With investors also concerned about defaults, NatWest will be one of those in focus as it has a relatively large number of small business customers.

For Barclays PLC (LON:BARC), the Credit Suisse rating was kept at ‘neutral’ with the price target upped to 130p from 125p.

The consensus forecast for Barclays is for a quarterly pre-tax profit of £491mln, down from £1.5bn a year ago. 

Profits in the first quarter of 2020 for the blue-eagle bank were £913mln as £2.1bn of charges were taken for potential loan losses.

Quick facts: Lloyds Banking Group

Price: 24.29 GBX

Market: LSE
Market Cap: £17.19 billion

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