RBS 'best placed' bank amid rising yield curve, Jefferies upgrades

Royal Bank of Scotland was upgraded to ‘buy’ from ‘hold’ by analysts at Jefferies on Wednesday in response to steepening UK yield curves and potential interest rate hikes from the Bank of England.

BoE governor Mark Carney surprised many earlier this month when he suggested that the central bank could raise its base rate sooner than expected.

After an assessment of several major UK banks, Jefferies said RBS was the best-placed to take advantage of the increasing yields and a rate hike before the end of the year.

RBS also saw its target price raised to 306p from 262p. Lloyd’s also had its target price increased to 91p, but Jefferies did not deem it to have enough potential for an upgrade in its recommendation.

“Share price performance of RBS and LLOY reflects neither the significance of recent steepening UK yield curves nor base rate hike expectations and their corresponding important impact on earnings and rates of return on equity,” Jefferies said.

Analysts added that it sees pre-tax profits for UK financial to increase around 10% in 2017-2018E, as reliance on NatWest as the source of earnings growth recedes.

“RBS sees the most upgrades as we increase 2017-2018E pre-tax profit an average of 10%. This increase has the important effect of reducing the reliance on NatWest capital markets as the key source of earnings growth over the coming years.”

The banking group’s share price was boosted 1.68% as of 11:22 BST off the back of the upgrade.