UBS and Barclays upgrade Royal Bank of Scotland ahead of Q1 results

Analysts at UBS and Barclays Capital upgraded Royal Bank of Scotland (RBS) ahead of its first quarter (Q1) results on Friday 1 May.

UBS raised its rating for RBS to a ‘buy’ rating, while analysts from Barclays Capital upped their assessment of the stock to ‘underweight’. However, the pair both downgraded their target price for RBS to 150p and 130p, respectively.

Based on RBS trading at 114p per share as of 12:45 (GMT) on Wednesday, analysts from both banks believe the stock has a potential upside of between 14% - 31%.

UK banks likely hit by bad loan losses

Investors are expecting RBS and other UK banks to be hit hard by bad loans, damaging their respective capital positions amid the Covid-19 crisis.

Acting proactively, the Bank of England (BoE) has urged RBS and other UK lenders to be lenient on borrowers and show restraint in booking charges for bad debts in a bid to shore up their balance sheets.

Across the Atlantic, the top six largest US banks have allocated over $25 billion in total for the first quarter in preparation of major losses as a consequence of the economic fallout from the viral pandemic.

As a result, the BoE is concerned that UK banks will take similar action which would significantly hinder their ability to lend to businesses in desperate need of cash.

Investors are eagerly awaiting RBS and other UK banks earnings to see just how much the coronavirus outbreak has impacted their financial performance and their ability to support the wider economy.

PRA requests UK banks suspend dividend

Much to the disappointment of shareholders, Britain’s largest lenders complied with guidance from the Bank of England (BoE) and suspended dividend pay-outs in 2020.

Barclays, Lloyds, RBS, HSBC, Santander and Standard Chartered all said that they would cancel their dividends for the 2019 financial year and agreed to refrain from making any pay-outs to shareholders in 2020. The banks even promised to cancel any share buyback initiatives too.

The Prudential Regulation Authority (PRA), the supervisory division of the BoE, welcomed the dividend cancellations and not having to take any formal action against any UK banks.

The PRA hopes that by keeping cash on lenders balance sheets, rather than in shareholders pockets, it will help the industry offset some of the impact of the Covid-19 crisis.

The regulator also expects banks not to pay any cash bonuses to senior staff over the coming months.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.