Fri, 14th Dec 2018
Analysts at Morgan Stanley have cut their price targets for RBS and Barclays amid Brexit uncertainty. The Bank of England is due to release its annual report today, and analysts expect that it will raise interest rates by 50bps next year, and then by another 75bps over the course of 2020.
Morgan Stanley also reduced its net interest income growth expectations for Royal Bank of Scotland, and increased its cost estimate to just over 30 basis points. This makes for a 9% reduction in earnings per share. The price target for Barclays was reduced from 225p to 210p, and they lowered their earnings estimate by 5%.
Barclays met with activist investor Edward Bramson earlier this month to discuss the investor’s call for the bank’s investment arm to scale back. Bramson runs Sherborne Investors, which has a 5.4% stake in the bank; enough to call them to an extraordinary general meeting. The Bank’s chairman, John McFarlane, has said that he will be standing down in May 2019, which is one change that Sherbone has been advocating for. The bank has posted some positive results, with an increase in net profits over the first nine months of the year, however they are still dealing with a number of challenges.
The analysts note that the Bank of England is more hawkish than the market consensus, and for that reason they believe that rate hikes will be on the way. The predict, however, that there will be asset spread compression which will reduce a lot of the net interest income.