- Lloyds Banking Group
- 09 April 2026 14:03:59
Source: Sharecast
"First, banks are one of the few sectors still seeing earnings per share upgrades, mainly on a superior revenue outlook, albeit it a number of banks have also delivered better cost guidance," it said. "Second, following recent events in Iran, the forward curve now points to two ECB hikes this year, supportive for earnings; we increase 2027-28E EPS for most names."
Thirdly, it said the sector looks set to derive cost and productivity enhancements via AI adoption over the next three years.
Finally, Citi said banks are now generating significant excess capital which can be deployed either via buybacks, loan growth or M&A.
It said Middle East and private credit fears were "overblown". It attributed the selloff post the Middle East conflict to positioning more than fundamental factors. "We see limited first-order impact, and see EPS upgrades, rather than downgrades, post the move in forward rates."
Citi’s top picks are HSBC, NatWest and Societe Generale, all of which are rated ‘buy’.
It nudged the price target on Lloyds up to 114p from 106p, along with the rating upgrade.
It said that of the 22 companies mentioned in the report, Lloyds has the largest EPS upgrades of any name, with 2027-28E EPS increasing by 7-10%.
"This mainly reflects higher NII, as we now assume flat Bank of England rates at 3.75% (previously we modelled two cuts this year) and higher reinvestment yields on the structural hedge (4.4% versus 4.0% previously), which is only part offset by slightly lower mortgage loan growth assumptions."
Citi said that among European banks, it sees Lloyds as one of the biggest beneficiaries of higher reinvestment yields, in part due to the longer average duration of its hedge versus peers, meaning this should now continue to be a healthy tailwind into 2027 but also into 2028.
"Lloyds also has one of the more compelling non-NII growth stories, where we forecast a further 9% growth in 2026 (similar to 2025), driven by Scottish Widows, LDC, Lloyds Living and the full consolidation of Schroders Personal Wealth on 1st October 2025," it said.
Citi also upgraded Deutsche Bank, to ‘neutral’ from ‘sell’, purely on valuation grounds, with the stock down 24% year to date and significantly underperforming the broader banks index.
"Consequently it now trades on only 0.8x P/TB and 7.0x 2027E P/E and so we no longer see sufficient downside to retain our sell rating," it said.
At 1400 BST, Lloyds shares were down 2.3% at 99.78p as it traded without entitlement to the dividend.
