© Reuters. Lloyds Banking Group is Morgan Stanley's top UK banking pick
Proactive Investors – Shares in Lloyds Banking Group PLC (LON:) are up around 1.1% after Morgan Stanley (NYSE:) named it as its top UK banking pick.
“Deposit mix migration has slowed down during Q3, which could make 4Q [net interest margins] less bad than feared and provides better visibility for 2024.”
“We re-iterate our positive view on UK banks, and see Lloyds as Top Pick.”
For Lloyds, the broker forecast [net interest margin] would fall 6 basis points quarter-on-quarter to 3.02% in-line with company guidance and consensus.
For 2024, it predicts a 2.94% NIM which is also consistent with the guidance of “below 3%”.
It estimates a £500 million provision release related to the write-back of the Telegraph debt in December, which leads it to raise its share buyback expectations from £2 billion to £2.5 billion, higher than consensus at £2.2 billion.
“On 0.9x [tangible net asset value] for a 13% [return on tangible equity] 2024-2026E, we re-iterate our ‘overweight’ on the stock,” the bank said.
It views Barclays (LON:)’ investor update “as a positive catalyst,” but suggested NatWest could lower its 14- 16% ROTE guidance.
On NatWest the bank expects “NIM down from 2.94% to 2.87% in the quarter, broadly in-line consensus.”
“Although we acknowledge short term upside on lower deposit competition, we believe Natwest (LON:) is the more rate sensitive of the three large domestic names and we believe it is vulnerable to the new lower rates curve.”
Barclays is rated ‘overweight’ and NatWest ‘equal weight’.
The broker has also nudged up its price targets for HSBC (LON:) and Standard Chartered (LON:).
