We Plan to Lower Our Fair Value Estimates for Several U.K. Banks
The Brexit vote will have wide-reaching implications for our European financials coverage universe.
The Brexit vote will have wide-reaching implications for our European financials coverage universe. We plan to lower the fair value estimates for several U.K. banks such as Barclays PLC (BCS), Royal Bank of Scotland Group PLC (RBS), and Lloyds Banking Group PLC (LYG), and we will review others such as Banco Santander SA (SAN), which has U.K. exposure.
We believe this raises the strong possibility that we may change our moat trend ratings for Lloyds, Royal Bank of Scotland, and Barclays to negative from stable. We do expect the U.K. system and the broader European Union to experience substantial uncertainty and volatility going forward, as the U.K. seeks to renegotiate trade agreements with other countries, unwind other legal agreements with the EU over the next several years, and deal with the political aftermath of Prime Minister David Cameron's resignation.
We also now see the strong possibility of Scotland seeking independence, causing further turmoil to the overall system, particularly the Edinburgh-based banks Lloyds and Royal Bank of Scotland, which may need to re-domicile.
While the impact of Brexit is far reaching, we do see an undervalued opportunity with HSBC Holdings PLC (HSBC), primarily due to its relative lack of U.K. exposure and its pivot toward Asia.
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Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.