Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a522666

Evolution: buy ‘dog’ RBS, ‘hopeless’ Lloyds; sell HSBC

Evolution's punchy new banking analyst, Ian Gordon, has got straight down to work with notes on each of the five biggest British banks.

 
Evolution: buy ‘dog’ RBS, ‘hopeless’ Lloyds; sell HSBC

Evolution Securities' punchy new banking analyst, Ian Gordon, has got straight down to work with notes on each of the five biggest British banks. He gives state-backed lenders Royal Bank of Scotland (RBS.L) and Lloyds (LLOY.L) ‘buy’ ratings, while recommending investors sell HSBC (HSBA.L).

The five research notes by Gordon – who joined Evolution from Exane BNP Paribas – are a useful precursor to the much anticipated final report from the Independent Commission on Banking (ICB) on Monday.

The government-appointed commission is expected to confirm proposals that will split banks’ high street and investment banking arms, but is unclear as to the speed and urgency with which they will be implemented.

Bank stocks fell on Friday ahead of the report, and as investors awaited a Group of Seven meeting on faltering global growth and Europe’s debt crisis, with the FTSE 350 Banks index weakening 1.4%. The index has plunged 28% so far this year.

‘RBS, the darling of the sell-side, is a dog,’ wrote Gordon. ‘But we are through a key inflection point.’

He said there would be no early return to the ‘bizarre’ 58p share price level achieved in August 2009 and April 2010, warning that ‘the taxpayer will not get out clean.’ The government bought its RBS shares at an average price of 51 pence; they traded at less than half that on Friday, at 21.6p.

However, the analyst pointed out that its tangible net asset value per share has already rebounded from the low watermark of 50.1p reached earlier in the year, and its risk profile had been reduced significantly.

‘It is quite a rare occurrence for this stock, but the risk/reward is now highly favourable,’ Gordon said. ‘It is time to buy.’

Lloyds, he said, appeared to be the ‘most challenged’ UK bank: with the weakest capital ratios and funding position; the most exposed to falls in property prices; extraordinary levels of adverse asset selection; and a history of ‘hopelessly inaccurate guidance’.

‘It is only our third choice UK bank, but it now offers better value than the quality names in sector, Standard Chartered and HSBC, so we rate it "buy"’, he said.

The analyst also gave Barclays (BARC.L) a ‘buy’ rating, pointing out that the bank may have a ‘sub-optimal’ business mix, but remains relatively defensively positioned, well capitalised and solidly profitable.

Cable's threat

He noted that its shares had been hit by a fearful market’s aversion to the perceived threat to valuation posed by the Secretary of State for Business, Innovation and Skills, Vince Cable – who has long argued for a tough line to be taken with banks.

Sign in / register to view full article on one page

10 comments so far. Why not have your say?

Maverick

Sep 09, 2011 at 16:15

So a banking analyst working for a broker says buy UK banks. Well, he would, wouldn't he?

No thanks.

report this

Franco

Sep 09, 2011 at 17:05

Company analysts are two a penny and I do not pay the slightest attention to what they say. For every one saying buy there is another one saying sell, other wise the share price would not be what it is. Those employed by banks could not even see where their own company was going a week before its collapse.

Further more, if they were right more than half the time, they would not be working for a living, they would be on the French Riviera with a blonde on each arm.

report this

mikeran

Sep 09, 2011 at 17:49

For too long now analysts have been issuing buy notes against UK Banks.And for too long now every bit of global Financial or political bad news seems to be interpreted by the Market players as a signal to short yet further UK Bank shares.Today( Friday) we witnessed a quad Whammy of bad news from eurozone/UK and US. Then of course the DOW fell and the Auto trading HFT pattern slipped in , and trashed UK banks. I am sure the Market made money, but Analyst notes have lost all credibility and perhaps are only issued against a company ( employer) agenda.

report this

Medved

Sep 09, 2011 at 19:15

@Franco.

"Those employed by banks could not even see where their own company was going a week before its collapse."

Agree with all you say but don't buy that one. They were told to keep shtum.

report this

jon d

Sep 09, 2011 at 19:31

This is totally anti-market performance. Total drivel. Go clean between you toes!!!!!!!!!!

report this

82 yo

Sep 09, 2011 at 20:11

Vince does not seem to understand that it is in the interest

of the taxpayers, pension funds and all investors for the bank

shares to recover which his ongoing bank bashing does not help

report this

John Clay

Sep 09, 2011 at 20:25

If everyone says sell then now is the time to buy

report this

Maverick

Sep 10, 2011 at 08:46

John Clay - There's another rule - don't buy in a falling market. I would need a great deal of persuasion to start believing that UK bank shares have no further to fall.

Wish I could have had a hot dinner for every time some analyst has said in the last three years, "It's time to buy UK bank shares."

No doubt if you were a day trader you could have made some serious money in the last three years dipping in and out of UK bank shares. But I'm an investor, not a day trader, and I've got better things to do with my time.

report this

Maverick

Sep 10, 2011 at 08:52

. . . . Oh, and my experiences of UK banks, both privately and professionally, over the past 40 years don't give me a warm glow at the thought of investing in them.

Somewhere in the region of arms dealers and tobacco producers, in fact.

report this

Anonymous 1 needed this 'off the record'

Sep 10, 2011 at 11:29

Still think Lloyds good value at 30p and will add some further at 25p and 20p. Don't think the Tax Payers will see anything though, but they never do.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

  • Fidelity Special Situations Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • Royal Bank of Scotland Group PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Lloyds Banking Group PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • HSBC Holdings PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Standard Chartered PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Barclays PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet