Deutsche Bank downgrades Barclays, upgrades NatWest

"We expect Barclays pre provision profit to decline in 2022 and we expect this to hold back relative performance in the next year - hence our downgrades," it said.

"We expect revenues to fall due to lower income from the investment bank due to credit normalisation. We expect underlying costs to grow modestly due to investment and wages."

Deutsche said that restructuring costs - which Barclays includes in underlying costs where other banks do not - are expected to fall. "We expect Barclays to reiterate their 10% medium term return on tangible equity target which is mostly reflected in expectations already," it added.

DB said NatWest is the most rate sensitive of the UK banks, which should benefit revenues substantially over 2022/23.

"Natwest has cut its employee base by more than the other UK banks at the half year which gives us some confidence that the -4% per annum cost decline guidance can be more or less met next year," it said.

"NatWest currently 9-10% ROE in 2023 excluding rate increases - with full-year results we expect NatWest could target 10% or higher," it said. "NatWest has benefitted significantly from mix shift since 2019. We expect earnings to reflect lower net interest margin; lower cost of risk; lower capital consumption but ultimately higher ROTE mix of lending by 2024."

HSBC was upgraded to ‘hold’ from ‘sell’, with Deutsche noting that the shares have underperformed throughout 2021, increasing 15% compared to UK domestic banks around 25-30%. "Our upgrade is based primarily on valuation, as the stock has underperformed; revenue inflection, as rates start to support the revenue base; and 2022 cost inflation already announced at HSBC removing risk in February," it said.

Deutsche said it prefers Standard Chartered to HSBC and maintained its ‘buy’ recommendation.

"Standard Chartered underperformed significantly in 2021 driven mostly by successive misses to consensus expectations through results season. Standard Chartered's strong underlying volume and activity growth should start to translate into strong top line revenue growth going forward and it will really accelerate in 2023 as US and US linked rates start to increase," it said.