Jefferies Backs UK Banks with Buy Ratings Amid Politics

Analyst Outlook on UK Banks

Jefferies has reaffirmed its "buy" ratings across UK domestic banks. This endorsement comes even as the sector has de-rated by more than 15% since January, a decline largely attributed to political uncertainty over a potential leadership change.

Market Performance vs. Fundamentals

Despite the drop in share prices, the sector has seen earnings upgrades of a similar magnitude. Jefferies highlighted this divergence by raising its medium-term earnings per share forecasts by approximately 5%, signaling confidence in the banks' underlying financial health.

Economic Forecast Adjustments

Supporting its positive stance, the firm has adjusted its long-term economic assumptions. Jefferies lifted its terminal base rate and five-year swap rate projections to 3.5% from the start of 2027, an increase of 25 basis points from its previous estimates set in February.

Summary and Outlook

While near-term political volatility is impacting valuations, Jefferies' analysis suggests that UK banks hold fundamental value. This view is underpinned by upward revisions in earnings and more favorable interest rate expectations for the long term.

FAQ

Q: Why did Jefferies maintain "buy" ratings on UK banks?
A: Jefferies maintained "buy" ratings due to strong fundamentals and increased earnings forecasts, which contrast with a market de-rating caused by political uncertainty.

Q: What were the key forecast changes from Jefferies?
A: Jefferies raised medium-term EPS forecasts by about 5% and increased its terminal base rate assumption to 3.5% effective from 2027.

Source: Investing.com