Credit Suisse sees downside risk at TSB

9th Jul 2014 10:42

Credit Suisse sees downside in the shares of TSB Banking Group as it started coverage of the stock with an 'underperform' rating.Analysts said they have initiated with a negative stance on the newly-listed Lloyds spin-off "despite the headline attraction of a simple and legacy-free way to tap into the profitability of UK retail banking".They believe that TSB's dependence on parent group Lloyds is overly engineered and complex, resulting in lower returns in the medium to long term."This is reflected in many ways, the main being circa 30% higher capital demand compared with its UK retail banking peers, which will have natural knock-on effects in terms of capital policy, pricing, and profitability."Meanwhile, future profitability will be affected by an increase in costs charged by Lloyds after its IT service agreements expire in 2017, and when the contribution of the 'Mortgage Enhancement' loan book will have largely rolled-off.These two issues are not being fully reflected in TSB's current market valuation, Credit Suisse said.The Swiss bank gave the shares a target of just 250p, compared with the price of 278.38p as of Wednesday morning, down 1.7% on the day.BC