Lloyds Banking Group PLC upgraded as JP Morgan expects UK banks to play catch-up

Lloyds Banking Group PLC (LON:LLOY) has been upgraded to ‘overweight’ from ‘neutral’ by analysts at JP Morgan, who said that a “multi-year underperformance of UK banks” is likely to end amid an improved outlook for capital return over the next 12 months.

In a note on Monday, the investment bank also upped its target price for Lloyds to 51p from 42p, saying that while the bank had underperformed the most within the pure-play domestic UK banks over the last year, most of the concerns around the stock were now “in consensus expectations” and that higher front book rates are a “positive offset vs the back book roll off”.

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However, JP Morgan said Barclays PLC (LON:BARC) remained their top pick in the sector and raised their target price to 210p from 190p and retained an ‘overweight’ rating. The bank said they saw “significant value” on Barclays and forecast “medium term recovery potential in UK retail, US Cards as well as Transaction Banking/Payments”.

The investment bank also said the outlook for domestic UK net interest income (NII) is “improving significantly”.

Other banks in JP Morgan’s coverage such as NatWest Group PLC (LON:NWG) had its target raised to 210p from 190p and was maintained at ‘neutral’, while Virgin Money UK PLC (LON:VMUK) was downgraded to ‘underweight’ from ‘neutral’ and its target raised to 180p from 130p.

Shares in Lloyds rose 1.8% to 41.8p in late-morning trading, while Barclays climbed 1.4% to 185.1p, NatWest was up 3.4% to 197.9p and Virgin Money fell 0.3% to 192.6p.