Deutsche Bank lowers price target on Aldermore Group

Updated proposals from the Basel Committee for standardised credit risk pose another headwind for Aldermore Group, Deutsche Bank said.

The new proposals, published on 10 December, suggest raising risk weights to a minimum of 70% for residential property when repayment is materially linked to cash-flows generated by the property.

That could reduce the lender’s core equity Tier-1 capital position by 230 basis points to 9.7%, analyst David Lock said in a research note sent to clients.

Hence, Lock lowered his target price on the stock from 267p to 240p.

For buy-to-let mortgages with a loan-to-value ratio below 60% the risk-weight assigned would be 70%, for values between 60-80% the risk weight would rise to 90% and for higher LTVs to 120%.

At the end of the first half of 2015 the average LTV on Aldermore’s buy-to-let mortgages was at 62%.

The bank’s target for core equity capital is 11%, which means it might have to dedicate retained earnings to fill the gap, which in turn would weigh on growth.

Lock kept his recommendation on the shares at ‘neutral’.