Broker snap: JPM takes cautious view on RBS, but hikes target

20th Jan 2014 14:52

JPMorgan Cazenove saw a positive earnings outlook for domestic UK banks in 2014, driven by the economic recovery at home, its analysts wrote to clients on Monday. They expected to see a multitude of positive developments as a result of the above, including: improving net interest margins (NIM) and loan demand, a recovering commercial real estate (CRE) sector and lower loan losses. In parallel, the benefits from cost reduction measures had still to come through.However, they also foresaw that those factors would be compensated for by the uncertain regulatory environment, which remained a key 'overhang'. Thus, capital requirements at lenders were likely to remain unclear throughout the year, at least until the fourth quarter, they said. As well, legacy issues were still thought likely to weigh, the broker added added; amongst them were question marks surrounding PPI, IRHP related redress and FHFA.As a result of the above, they remained selective in their approach, preferring exposure to Barclays - on which they had an' overweight' recommendation with a price target of 315p - for example. Although they downgraded RBS to 'underweight' they increased their price target on the lender to 350p, from 320p. The downgrade on RBS was in response to the possibility that the normalization of earnings could take longer than the market anticipated while litigation risks continued to be significant.Lastly, and as for HSBC and Standard Chartered, they thought that the "traditional balance sheet and dividend arguments in [their] favour [...] had faded, due to a more challenging emerging market environment for revenue growth."Capital was increasingly likely to be a focus at Standard Chartered given the UK stress tests coming up in mid 2014, they concluded by saying. AB