JP Morgan backs NatWest over Lloyds

The Wall Street bank said that the last two quarters had seen domestic banks report net interest margin trends "that have underwhelmed more bullish market expectations".

It continued: "In our view, both NatWest and Lloyds have reset the market’s NIM expectations, which were too high since the start of the year, and we now see consensus expectations as more realistic for 2023."

It remained cautious on the outlook for net interest income going into 2024/25, however, "with deposit migration, rising betas, lending volumes and mortgage headlines still posing significant risks to NII medium term".

The bank concluded: "In the near term, with asset quality resilient, capital return continuing, swap rates moving higher and with the UK base rate expected to rise by another 50 basis points, we see better risk reward for NatWest relative to Lloyds from a tactical perspective into the second-quarter results, and place both stocks on catalyst watch with ‘positive’ and ‘negative’ view respectively."

JP Morgan also reiterated its ‘overweight’ rating on Barclays - its only such rating in the domestic banks sector. Both NatWest and Lloyds have ‘neutral’ ratings.