Lloyds Banking the top pick among banks for Credit Suisse

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Credit Suisse continues to have a positive view on the UK domestic banks, with Lloyds Banking Group PLC (LON:LBG) as its top pick.


The improved UK economic outlook and the prospect of rising interest rates are positive for the sector while valuations are cheap on a historical basis and in comparison to international members of the STOXX Banks Price Index.


UK rates expectations were fairly unchanged over May after an improvement in April, but remain meaningfully improved over the year, which Credit Suisse (CS) thinks is not reflected in consensus estimates. Short term rate developments so far in the second quarter support its call to prefer UK domestic over UK international names, the bank said.


“BOE [Bank of England] data released for April show new business mortgage margins came down further and are now 11bp [basis points – 100 basis points equals one percentage point] above the stock (vs 20bp in March); however, 2Y [two-year] fixed-rate mortgages (which re-price faster) are more meaningfully above the stock. Our price tracker shows that over May application margins came down by a further 7bp we think (mainly driven by pricing 5bp). April mortgage volumes fell back from exceptionally high March levels though approvals continue to be solid,” CS said.


Lloyds, of course, is king of the mortgage world in the UK and is CS’s preferred stock in the sector.


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