Broker snap: Goldman's contrary view on Lloyds

29th Jun 2009 12:50

US bank Goldman Sachs has added part-nationalised British bank Lloyds Banking Group to its conviction buy list, claiming Lloyds shares represent the cheapest option among the major large-cap European banks.Goldman Sachs has upgraded Lloyds from "neutral" to "buy", going against the trend of most investment analysts. "Lloyds is one of the worst performing banks year to date, and has three times as many sell ratings as buy ratings," Goldman Sachs (GS) notes. "This suggests to us that the market expects Lloyds to be a structural loser from the changes in the UK banking market."GS takes a contrary view, expecting Lloyds to be a "key beneficiary" of the concentration of market share in the UK banking market, as it uses its 30% market share to boost efficiency and exercise pricing power. "Lloyds has historically delivered among the highest returns on equity and asset margins of all the large European banks and we believe it should be able to do so again," GS believes."Lloyds is trading at 0.8x our estimated trough reported tangible book value of 87p, vs. a 2011E ROTE [return on average tangible shareholders' equity] of 16%, making it the least expensive large cap bank in Europe," GS calculates. Goldman Sachs also resumed its coverage of Barclays with a "neutral" rating.