Morgan Stanley picks Lloyds as its top British bank

Rating is given even though the US investment bank has cut its stake in the British banking group

Morgan Stanley has upgraded its rating on the whole European banking sector. It highlights Lloyds Banking Group as its top pick of British banks even though the US investment bank recently sold a significant stake in Lloyds.

In a note to clients on November 19 Morgan Stanley described European banks as “attractive” instead of merely “in-line”. The decision comes as major investment banks now expect an end to the current round of interest-rate cuts and foresee greater stability in the near future.

One analyst described Morgan Stanley’s strategy of watching “for the recalibrating of business models against a shallow credit cycle”, citing Unicredit and Santander as well as Lloyds as offering the best potential.

Indeed the US bank maintained the British banking group’s ‘“overweight” rating, lauding its clarity on capital plans, steadily improving profitability and efficient cost-cutting measures.

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In September, Lloyds showed a strong balance sheet with pre-tax profits almost quadrupling thanks to an increase in net resources and lower administrative costs reducing its operating expense ratio.

Lloyds’ share price has experienced some small volatility this year with a 52-week high of 66.79 in April 2019 and a 52-week low of 48.16 in August. Following Morgan Stanley’s note to investors, Lloyds saw a 12.4 per cent jump in its share price. Although Morgan Stanley has given Lloyds a vote of confidence, in a somewhat perplexing revelation it also emerged that it has actually reduced its holding in the British bank by 16.6 per cent in the second quarter of this year.

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