Royal Bank of Scotland Group Plc would benefit the most among U.K. lenders from a rise in interest rates as it retreats from investment banking, according to analysts at Sanford C. Bernstein Ltd.
The company, 80 percent owned by the U.K. taxpayer, has more to gain than HSBC Group Holdings Plc, Lloyds Banking Group Plc, Barclays Plc and Standard Chartered Plc, the analysts led by Chirantan Barua, who has an outperform rating on RBS, wrote in a note to clients.
While investors don’t see rates increasing until next April, Bank of England Governor Mark Carney said yesterday it “could happen sooner than markets currently expect,” as Britain’s economic recovery strengthens. That may benefit banks with large U.K. customer deposits. When rates rise, banks try to raise the amount they charge for loans at a faster pace than they pay on deposits.
RBS, “given its depressed valuation and earnings, has the most to gain from normalization of rates,” the analysts wrote.
The lender, based in Edinburgh, is shrinking its investment bank and will get a greater proportion of revenue from customer deposits and loans, meaning it is more sensitive to interest rates, Bernstein wrote.
The company rose 0.6 percent to 342.2 pence in London trading, compared with a 1.1 percent decline in the six-member FTSE 350 Banks Index.
HSBC, Europe’s biggest bank, has about $400 billion of excess deposits and would also benefit from rate rises, according to the research. No bank had “suffered as much from loose monetary policy,” Bernstein wrote.