Citi has again highlighted its liking for UK domestic banks over their international rivals within the financial share universe, with Lloyds (LON:LLOY), Natwest (LON:NWG) and Barclays (LON:BARC) all rated as buys.
The US investment bank said the extreme moves in gilts and the pound following now ex-chancellor Kwasi Kwarteng’s mini-Budget will add around two percentage points to their cost of equity.
But it now sees base rates peaking at 4.25%, which it has baked into its models.
Bad debts will rise but so will net interest income leading to 18-24% earnings per share upgrades in 2023 and potentially even more in 2024.
Commentaries with the third quarter results (starting next week) will be upbeat, reckons the US bank, which should also provide reassurance.
Citi’s order of preference is Lloyds (buy); Natwest (buy); VMUK (buy); Barclays (buy); HSBC (LON:HSBA) (buy) and Standard Chartered (LON:STAN) (hold).