JP Morgan cuts rating on Barclays

29th Mar 2022 11:34

(Sharecast News) - The positive investment case for British banks is starting to weaken, JP Morgan said on Tuesday, as it reiterated Lloyds Banking Group as its top pick but cut its rating on Barclays.

The US bank said that the "shift in the UK economic outlook", including higher inflation and negative GDP revisions, was "starting to cloud the positive case for the banks, which rests on higher rates in our view".

It continued: "[We] conclude that the current rate hike cycle is more positive for net interest income (NII) relative to market expectations and versus the 2017 cycle based on our proprietary dataset that goes back over five years."

It reiterated that Lloyds, already its top pick, was best positioned, followed by NatWest Group, "where we see scope for continued tailwinds from higher rates to flow back to shareholders".

JP Morgan also upgraded Virgin Money UK to 'neutral' from 'underweight', "with upside to net interest margin and a buyback offsetting the ongoing cost negatives".

It cut its rating on Barclays to 'neutral' from 'overweight', however, "as we no longer see a catalyst for unlocking the valuation discount for the corporate and investment banking, alongside potential for higher costs (legal) and a more challenging non-NII outlook".

JPM added: "Some of the NII drivers, however, will likely start to turn in the second half of 2022 and our earnings per share forecasts are now below consensus across the board, due to the higher cost of risk which is not reflected in consensus."

As at 1130 BST, shares in Barclays were down 4% at 154.4p. Lloyds and NatWest were both ahead 1%, at 49.15p and 221.8p respectively. Virgin Money UK was 1% stronger at 180.05p.