(Updates with closing share prices in second paragraph.)
Aug. 30 (Bloomberg) -- Royal Bank of Scotland Group Plc, Britain’s biggest government-controlled bank, lead U.K. banks higher after Deutsche Bank AG analysts raised its recommendation to “buy”.
The Edinburgh-based bank rose by 8 percent to 23.64 pence in London trading, its biggest rise since Aug. 24. Lloyds Banking Group Plc gained 7.8 percent to 32.03 pence, while Barclays Plc advanced 6.7 percent to 165.4 pence.
“We think the value proposition is clear,” Deutsche Bank analysts including Jason Napier wrote in a note to investors today. Following a 36 percent decline in the share price of RBS in the last month, Deutsche said it was raising RBS to a “buy” from “hold.” “Barclays is our top pick,” wrote Napier.
The rally arrested the decline of U.K. banks, bringing the fall this year to 27 percent. Investors are awaiting a report from the government-appointed Independent Commission on Banking in a fortnight’s time, as concerns about Europe’s sovereign debt crisis cut earnings estimates. Yesterday, Greece’s EFG Eurobank Ergasias SA and Alpha Bank SA said they’d merge. On Aug. 25, Warren Buffett’s Berkshire Hathaway Inc. agreed to invest $5 billion in Bank of America Corp.
“The Greek consolidation is helpful, I think the Bank of America situation in also helping -- you’ve got significant investors taking stakes in banks, its psychologically some comfort,” said Neil Smith, an analyst at WestLB AG. “Plus the major under-performance of the sector versus the market over the last month.”
“As macroeconomic estimates settle down, confidence in more distant earnings per share projections for the likes of Lloyds Banking Group and RBS will improve, driving a significant increase in the share price,” Deutsche Bank wrote.
The U.K. government would be “barking mad” to ringfence the retail divisions of banks from other operations in the face of the current economic situation, John Cridland, director- general of the Confederation of British Industry told the Financial Times today.
“We don’t have the same level of sovereign fear other places have,” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “Into that mix you can throw in the comments from the CBI on the ICB report suggesting it might be watered down.”
--Editors: Francis Harris, Jon Menon
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