Latest News

Virgin Money upgraded as investment bank looks at what would happen to Lloyds and others if recession bites

0

Virgin Money upgraded as investment bank looks at what would happen to Lloyds and others if recession bites By Proactive Investors

Breaking News

‘;

Stock Markets

Published Dec 06, 2023 14:08
Updated Dec 06, 2023 14:40

© Reuters. Virgin Money upgraded as investment bank looks at what would happen to Lloyds and others if recession bites

Proactive Investors – Barclays (LON:BARC) Capital has upgraded its rating for Virgin Money UK PLC (LON:VMUK) to ‘overweight’ from ‘equal weight’, signalling a positive shift in its outlook despite growing recession risks.

The move reflects Barclays’ assessment of an attractive risk-reward balance for VMUK, amidst a backdrop of economic uncertainty impacting UK banks.

It also comes as Barclays analysts evaluate the potential effects of a recession on the banking sector, considering factors such as fluctuating interest rates and rising unemployment.

One key scenario considered involves a reduction in UK interest rates by 1% by 2024, coupled with an unemployment rise to 6% from the current 3.7%.

Such conditions could lead to a significant decrease in earnings per share (EPS) for major banks such as HSBC Holdings PLC (LSE:LON:HSBA), Lloyds Banking Group PLC (LSE:LON:LLOY), and NatWest Group PLC (LSE:LON:NWG), ranging from 25-40% compared to Barclays’ central case.

Despite these potential challenges, Barclays sees an overall positive outlook for the sector.

The analysis suggests an average of 40% implied upside potential across the banks covered, or even 60% if the more optimistic central scenario plays out. This implies that bank stocks could offer substantial returns if the economic conditions align more favourably than expected.

The report also delves into the relationship between unemployment rates and loan losses. Historically, a 1% annual increase in UK unemployment has led to a rise in loan losses for banks, impacting their financial stability. This aspect is particularly relevant in the current economic climate, where job security is uncertain.

In terms of net interest income (NII) – the difference between the revenue generated from a bank’s assets and the expenses associated with paying out its liabilities – Barclays anticipates up to 8% higher NII than the consensus for 2023/24.

This is especially true for NatWest and HSBC, indicating that these banks could see greater profitability from interest-earning activities.

Barclays maintains a favourable view of other UK banks as well. NatWest and OneSavings Bank (OSB) are rated ‘overweight’, with Barclays highlighting their strong potential returns and resilience in various economic scenarios.

HSBC, despite some near-term challenges related to capital and adverse foreign exchange movements, is also seen as a resilient player with long-term value, retaining its ‘overweight’ rating.

Read more on Proactive Investors UK

Disclaimer

Virgin Money upgraded as investment bank looks at what would happen to Lloyds and others if recession bites

Our Apps



Terms And Conditions
Privacy Policy
Risk Warning
Do not sell my personal information

© 2007-2023 Fusion Media Limited. All Rights Reserved.

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Coventry Building Society in talks to take over Co-op Bank

Previous article

Palantir Stock Keeps Dropping. It Just Failed a Key Test.

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in Latest News