Citi downgrades RBS to 'neutral' following 'relief rally'

17th Dec 2019 13:17

(Sharecast News) - Analysts at Citi downgraded their recommendations for the shares of multiple UK lenders and sounded a downbeat note on Lloyds following the the Financial Policy Committee's latest round of stress tests.
On the positive side of the ledger, the Conservative victory in the last general election and the sharp relief rally that had ensued among domestic UK banking stocks, led them to raise their target prices and cut their estimates of the cost of equity.

However, it also meant that they no longer saw "sufficient" upside to justify retaining their 'buy' recommendations on stock of RBS and Virgin Money, leading them to downgrade their view for the pair to 'neutral'.

Lloyds, Metro Bank, Paragon Banking and StanChart on the other hand were kept at 'neutral' and Barclays and HSBC at 'sell'.

In the case of the former, they added that in their view, the lender had the "disappointing" stress test " with drawdown under stress (post management actions) increasing by 140bps to 6.1%."

That, Citi said, might have repercussions for Lloyds's target capital ratio and share buybacks, while Barclays was deemed to be "tight versus [peers'] hurdle rates".

"By contrast the test was reassuring for RBS & STAN, where we expect further buybacks/specials in 2020."