Morgan Stanley Swaps Barclays Shares for NatWest in UK Bank Rating Shake-Up

Morgan Stanley reshuffled its UK banking preferences on Wednesday, downgrading Barclays (LON:BARC) while upgrading NatWest (LON:NWG), as it looked for greater exposure to revenue growth across the European sector.

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Analyst Alvaro Serrano cut Barclays to Equal Weight from Overweight, lowering his price target to 580 pence from 610 pence.

At the same time, he raised NatWest to Overweight from Equal Weight, though he trimmed its target to 750 pence from 850 pence.

The changes are said reflect a broader adjustment across the European bank space. Serrano explained that recent loan growth and purchasing managers’ index readings suggest the capital expenditure cycle is broadening out, which increases his conviction on the positive medium-term earnings picture.

Against that backdrop, the firm is seeking more exposure to revenue growth.

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The moves follow a similar reshuffle earlier in the week. On Tuesday, Bank of America downgraded Barclays to Neutral from Buy, cutting its target to 585 pence from 615 pence, while upgrading Lloyds Banking Group (LON:LLOY) to Buy from Neutral with a target raised to 140 pence from 130 pence.

BofA said competition is increasing for UK banks and that it prefers quality in that environment, leading it to favor Lloyds over Barclays.

Barclays shares fell 0.6% to 483.45 pence in Wednesday’s session, leaving them among the weaker performers, while NatWest gained 0.6% to 686.6 pence.

The back-to-back downgrades come as Barclays gained around 14.9% in the last 6 months. Nevertheless, it is up just 1.3% year-to-date..