Deutsche Bank lowers price target on Aldermore Group

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’.