Lloyds, RBS drop on Deutsche Bank downgrades

DB pointed out that UK bank shares have been particularly volatile since the UK voted to leave the European Union, with RBS, Barclays and Lloyds all down 30-40% since pre-Brexit levels at one point.

“However, almost all are at their highest point today since the announcement, buoyed by better-than-expected economic data and statistics (house prices grew in August according to Nationwide).

“Overall we think that the lower-for-longer environment is clearly negative for sector in the long term, but has differing impacts on individual banks in the near/medium term.”

Deutsche downgraded RBS to ‘sell’ from ‘hold’ and cut the price target to 170p from 200p. It said the bank was most at risk in the near/medium term due to already-low deposit rates (36bps), likely downgrades to loan growth, additional restructuring charges and the likely lack of a dividend until 2018.

It cut Lloyds to ‘hold’ from ‘buy’ and trimmed the price target to 59p from 60p saying that while the bank should benefit in the near term from falling deposit costs and potential sub-debt redemptions, there are risks from re-mortgage churn in the medium to longer term.

Deutsche upgraded challenger bank Aldermore to ‘buy’ from ‘hold’ and lifted the price target 188p from 170p. It said that of the banks it covers, Aldermore has the most to gain from the rate cut and term funding scheme crowd-out effect.

It lifted its price-target on hold-rated Barclays to 176p from 170p saying it is now its most preferred name of the large-cap UK banks given its income diversification. However, it reckons the stock is trading at close to fair value.

“Upside will require better than expected core revenues and/or non-core execution.”

At 1030 BST, Lloyds shares were down 1 .8% to 59.85p, RBS was down 2.7% to 198.80p and Barclays was down 0.3% to 173.80p. Aldermore shares were up 3.1% to 172.82p.