This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
In the wake of last week’s election result, the spectre of a no-deal Brexit is back, casting a shadow over the bank’s share prices. RBS shares fell 2.8 per cent this week, now standing at 247.40p at the time of writing but Lloyds was the biggest faller, dipping 4.9 per cent to 63.92p at the time of writing.
For Lloyds, further Brexit uncertainty is bad news as it is already struggling with tough market conditions and some huge fines relating to previous misconduct. To add to the banking giant’s woes, while it passed the latest round of annual stress tests, the Bank of England insists that all banks must raise their capital buffers from one to two per cent next year.
On the plus side, Lloyds managed to avoid a £650 million pay-out in November after a high court judge dismissed claims it had misled shareholders prior to the bank’s takeover of HBOS in 2008. So, is this latest dip just a blip caused by Brexit uncertainty and can Lloyds bounce back?
Opinions are divided on this one, although out of 12 analysts only one has given the bank a ‘sell’ rating which is good news. Berenberg has even pointed to Lloyds as the bank best placed to thrive in the current uncertain economic environment, although the firm has also suggested the bank will only sustain growth in the short-term. Some have questioned though whether the Bank of England hike will make it difficult for Lloyds to make good on its forecast dividend raise this year to 3.5p per share.
For RBS, the election result has brought good news along with Brexit uncertainty. A Labour victory would have put Jeremy Corbyn’s suggestion of nationalisation on the table for the banking giant which could have undone much of its recent good work from an investor’s perspective. Instead, the result means shareholders can anticipate some healthy forecasts for the current year – earnings per share is predicted to rise by an impressive 73 per cent.
Opinions from analysts are still mixed on RBS although most are cautiously optimistic. Many are satisfied with its price to earning ratio of 10.9 and what looks like a sustainable dividend yield of around five per cent. Twelve analysts have rated the stock as ‘hold’ and six have issued a ‘buy’ rating, with HSBC and Berenberg both raising their target prices.
Whether or not both banks perform to expectations remains to be seen, but it’s clear that the result of the election hasn’t eased turbulence for the sector just yet.
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.