After all of the big five UK bank booked higher provisions for expected coronavirus loan losses than was expected, analysts at Citigroup made significant cuts to 2020 earnings per share (EPS) on expectations of higher expected credit losses (ECLs).
The analysts said the impact of the new IFRS accounting measure on expected losses “has led to huge subjectivity on application, not helped by differing levels of disclosure and approaches”.
Although capital levels remain solid, said JPMorgan Cazenove analysts in another note on Monday, the pressure on normalised earnings is higher than consensus expectations, with pre-provision profits “materially lower” due to both lower revenue and limited restructuring, in addition to uncertainty over ECLs.
The JPMorgan analysts said Barclays PLC (LON:BARC) remains their top pick with its investment bank delivering positive earnings to offset to retail and credit cards ECLs, with the shares trading at 4.8 times forward earnings, followed by Royal Bank of Scotland PLC (LON:RBS), “which is less impacted on a relative basis to peers due to lower exposure to unsecured consumer credit”.
JPM kept its overweight ratings on Barclays and RBS but cut share price targets to 160p from 180p and to 180p from 200p, respectively.