Deutsche loses faith in RBS and Lloyds as both are downrated

Analysts at Deutsche said in a note to investors that the prospect of lower interest rates is “clearly negative” for the banking sector in the long-term with UK bank shares particularly volatile since the UK voted to leave the European Union.

RBS, Barclays and Lloyds shares have at some point all been down 30-40 per cent from pre-Brexit levels since June’s vote.

DB said that they expected individual banks would remain to be affected differently in the near to medium term.

Deutsche cut RBS to sell from hold and Lloyds to hold from buy.

It cut the price target for RBS to 170p from 200p, and trimmed the Lloyds price target to 59p from 60p.

DB said RBS was most at risk in the near/medium term due to already-low deposit rates (36bps), likely downgrades to loan growth, additional restructuring charges and the likely lack of a dividend until 2018.

Meanwhile, challenger bank Aldermore was upgraded by DB to buy as its price target was lifted to 188p from 170p.

However, better-than-expected economic data and statistics (house prices grew in August according to Nationwide), saw shares in the two Edinburgh banks react relatively robustly to the news.

Shares in RBS closed down 3.5 per cent at 197.1p, with Lloyds shares off 2.1 per cent at 59.65p.