After all of the big five UK bank booked higher provisions for expected coronavirus loan losses than was expected, analysts at Citigroup made significant cuts to 2020 earnings per share (EPS) on expectations of higher expected credit losses (ECLs).
The analysts said the impact of the new IFRS accounting measure on expected losses “has led to huge subjectivity on application, not helped by differing levels of disclosure and approaches”.
Although capital levels remain solid, said JPMorgan Cazenove analysts in another note on Monday, the pressure on normalised earnings is higher than consensus expectations, with pre-provision profits “materially lower” due to both lower revenue and limited restructuring, in addition to uncertainty over ECLs.
The JPMorgan analysts said Barclays PLC (LON:BARC) remains their top pick with its investment bank delivering positive earnings to offset to retail and credit cards ECLs, with the shares trading at 4.8 times forward earnings, followed by Royal Bank of Scotland PLC (LON:RBS), “which is less impacted on a relative basis to peers due to lower exposure to unsecured consumer credit”.
JPM kept its ‘overweight’ ratings on Barclays and RBS but cut share price targets to 160p from 180p and to 180p from 200p, respectively.
The Citi number crunchers cut their forecasts for Lloyds EPS by 12% for this year and 15% for the next, while Barclays was given a 6% for both years, and RBS was given a 4-8% cut, mainly on lower net interest margins (NIM).
Citi cut its target price for Lloyds to 45p from 50p and to 160p from 165p for RBS, though both were kept on ‘buy’ ratings, but Barclays was kept at ‘neutral’ but its price target nudged up to 108p from 106p.
Over at Berenberg, the big change was to lift the price target on Lloyds to 35p from 34p.
Lloyds and RBS shares were down 2% to 30.78p and 110.85p respectively on Monday afternoon, Barclays was down almost 3% to 99.76p, and StanChart down 4% to 392.7p, while HSBC was only slightly in the red at 399.8p.