Banks To Face Margin Pressure In 2010

(Reuters) – BANKS ARE LIKELY TO FACE margin pressure in 2010 and beyond on rising loan spreads, aggressive deposit pricing and more expensive wholesale funding, UniCredit said, initiating Lloyds Banking Group with a ‘sell’ rating.

‘The sector still faces significant challenges, we believe: margins, liquidity, credit quality and regulation to name a few,’ analyst James Invine wrote in a note to clients.

However, he began coverage of Barclays, the country’s second-biggest bank, with a ‘buy’ rating, saying it was best positioned to face these challenges.

Barclays is adequately capitalized given the better quality of its loan book and its profitability, the analyst said.

Invine initiated coverage of Royal Bank of Scotland with a ‘hold’ rating.

On Lloyds, the analyst said, ‘We believe that it is the most liquidity-constrained of the three, and while a break-up looks to be only a small possibility, we believe that it could cost shareholders 22% of the value of the group.’

Invine said he was also sceptical that the bank can meet its outlook of rising margins in 2011.

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