NatWest Shares (LON:NWG) Gain Double Upgrade

Jefferies, the prominent investment banking firm, has changed its tune on NatWest (LON: NWG), upgrading the UK-based banking group from ‘underperform' to ‘buy.' This double upgrade from bearish to bullish in recommendation reflects a positive shift in the firm's outlook for the bank and comes after Natwest shares have already added 61% on a year to date basis.

Despite this upgrade, Jefferies continues to confer the title of its preferred stock in the robust UK banking sector upon rival Lloyds (LLOY).

In a broader look at the UK's banking landscape, Jefferies has reiterated its support for other high-flyers such as Barclays, maintaining its ‘buy' call. The forecast remains sanguine for UK banks in general, with Jefferies predicting that these institutions should deliver a sterling 15% per annum total shareholder return stretching out all the way to 2027.

Jefferies analysts have pointed out the beneficial impact of structural hedges currently in place within domestic banks, noting these allow the banks to receive 1.7% on the fixed leg against a pay floating leg of 5%. This hedging strategy is anticipated to serve the banks well in the face of fluctuating interest rates and economic shifts.

The investment banking firm casts a particular spotlight on Lloyds, with projections pinning 2025 as a potentially lucrative year for the banking institution. Factors contributing to this potential boom include the resolution of car finance mis-selling redress and an acceleration in tangible net asset value (TNAV), indicative of a solid financial grounding and potential for growth.

Looking further ahead, Jefferies suggests that the established hedges should ignite in 2026 for Lloyds, hinting at an expected upswing in profits as these financial strategies mature. It's this forward-looking optimism, bolstered by the promising financial mechanics in place, that seems to underpin Jefferies' preference for Lloyds despite the newfound approval for NatWest's prospects.