HSBC cuts price targets for Barclays, Lloyds and RBS

The exposure of UK banks to China and oil should not be a material concern and the prospects for dividends have improved but the likelihood of later rate hikes in the UK means their shares are now worth less, HSBC analysts said.

To back-up their claim as regards China and crude oil, the broker pointed to then current-pricing for Barclays, Lloyds and RBS´s credit default swaps.

"UK banks’ exposure to the twin market drivers of oil and China doesn’t look big enough to cause material concerns; CDS spreads point to a similar conclusion," analysts Peter Toeman and Robin Down said in a research note sent to clients.

In parallel, the "about turn" by the Financial Policy Committee meant the requirement for lenders´ capital cushions, or so-called Core Tier 1 Equity, of 12% was "materially lower than earlier estimates because of contingent capital, the stress-test regime and structural reform," they said.

Of Britain´s seven large banks, the majority were above or just below that threshold, with only Barclays an outlier at 11.1%.

Even in that last case, they added that: "Barclays’ strong showing in the 2015 stress test suggests that its regulatory requirements could be lower than peers."

Hence, the outlook for dividends from UK banks had improved "materially", HSBC said.

Nonetheless, and due to the impact which later rate increases would have on their net interest margins HSBC lowered its target prices on Barclays from 315p to 230p, on Lloyds from 103p to 80p and for RBS from 360p to 260p.

Toeman and Down kept their recommendation on shares of Barclays and Lloyds at 'buy' and that on RBS at 'hold'.