Morgan Stanley has downgraded Barclays to Equal Weight from Overweight and trimmed its price target to 580 GBp from 610 GBp, while simultaneously upgrading domestic rival NatWest to Overweight from Equal Weight.
The paired call, part of a broader reshuffling of European bank ratings, signals where the broker now sees the most compelling revenue growth in UK banking, with NatWet shares now favoured.
Barclays shares most recently changed hands at roughly 482p, having fallen back 6.38% over the past month, whilst NatWest trades at 690p, down 4.48% on the month. Whilst Barclays has been downgraded, the new 580p target still implies upside of roughly 20%, a reminder that the downgrade is a relative call rather than a fundamentally bearish one.
For NatWest, the new 750p target, although reduced from 850p, now carries the firm’s conviction Overweight rating, even if the upside to the target is lower than BARC at ~10%.
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A Closer Look
The calls were made by Morgan Stanley analyst Alvaro Serrano as part of a wider adjustment of ratings across the European bank space. The firm’s central thesis is that recent loan growth and purchasing managers’ index readings suggest the capex cycle is broadening out, strengthening its conviction in the medium-term earnings picture for the sector.
Within that framework, Morgan Stanley is explicitly seeking more exposure to revenue growth, favouring names where rising business investment and loan demand translate most directly into operating leverage.
The underlying sector math remains supportive. Morgan Stanley expects UK net interest income to grow about 10% in 2026, roughly double the circa 5% pace projected for the broader European banking sector, underpinned by stable deposits, healthy loan growth of around 4%, and structural hedges still yielding approximately 2.5% against a front-book yield near 3.6%.
On profitability, the bank projects Barclays reaching a 14–15% return on tangible equity by 2028, while NatWest is seen delivering around 18%. NatWest is also expected to lower its “go-to” CET1 ratio to 13%, expanding its capacity for buybacks and distributions. Valuations, meanwhile, remain undemanding: UK domestic banks trade toward the lower end of their historical 6–10x forward price-to-earnings range despite improved profitability and capital generation.
The downgrade also lands against a shifting sell-side backdrop. Bank of America recently moved in the opposite direction on the same pair of stocks’ peer set, upgrading Lloyds to Buy from Neutral while cutting Barclays to Neutral from Buy and trimming its target to 585p from 615p, citing intensifying competition for deposits and slowing loan growth.
Explaining the rotation, Morgan Stanley said in its research note that recent loan growth and PMI readings suggest the capex cycle is broadening out, adding that this “increases conviction on the positive medium term earnings picture.”
