JP Morgan sees upside for domestic UK and Irish banks in 'soft Brexit'

Previously their economists had been "pessimistic" regarding the possibility of such an outcome but now were less so, with the house view at JP Morgan now assigning even odds of a deal.

If Westminster clinches a deal, then higher five-year interest rate swaps and lower impairments meant there was likely as much as 11% upside for lenders' earnings per share.

At the time of writing, UK bank shares were trading on an estimated 2021 price-to-earnings multiple of between 6.0-7.5.

Nonetheless, even in soft Brexit scenario, lenders' shares weren't likely to go up in a straight line, JP Morgan said.

"We caution that this is not yet a done deal with potential pull-backs ahead given the UK government does not have a majority with numerous issues still unresolved and the outlook for the domestic economy still under pressure."

Their 'top pick' in the space was Allied Irish Banks and they also preferred Barclays, both of which were trading on a price-to-tangible net asset value of 0.6, while their recommendation for RBS and Lloyds was kept at 'neutral' and that on HSBC and Metro Bank at 'underweight'.