Proactive Investors - Lloyds (LON:LLOY) Bank remains the pick of the UK banks at Citibank, though it admits the benefits of higher interest rates have yet to prove the boon it expected.
In fact, it says for much of the year higher interest rates have been regarded as negative, as illustrated by the inverse correlation between share prices and base rates.
“This has been a function of a higher cost of equity, slowing economic output (although this has proved more resilient than initially expected) and rising deposit betas.“
But with interest rates close to peaking and “cuts probable” from mid-2024, past experience suggests with bank stocks so heavily derated better than expected returns might spark a revival over time.
In order of preference, Citi ranks the banks Lloyds, HSBC (LON:HSBA), NatWest (LON:NWG), and Barclays (LON:BARC) which are all buys, with Virgin Money (LON:VMUK) a weaker buy and Standard Chartered (LON:STAN) at neutral.