Banks were taking a hit on Tuesday after Espirito Santo downgraded Royal Bank of Scotland and Lloyds, saying that the operating environment remains difficult in the face of a weak economic outlook.

RBS and Lloyds are now two of the most expensive stocks under Espirito's coverage and the broker foresees "limited upside" from current levels. Meanwhile, the broker said that short-term regulatory risks still remain.

"With Lloyds most impacted if regulators moved to standardised credit risks, and RBS the weakest capitalised UK bank, dilutive equity raisings cannot be ruledout. Hence we downgrade Lloyds and RBS to 'sells' reflecting full valuations and regulatory risks," it explained.

In contrast, Espirito reiterated its 'buy' ratings for sector peers HSBC and Standard Chartered for their international growth and for Barclays ahead of its strategic review announcement next month.

The comments came as RBS also suffered as a result of concerns about alleged LIBOR manipulation in the US.

The business was making headlines on rumours that suggested it could be charged as much as £500m by regulators to settle claims over a probe into rigged LIBOR.


Top performing sectors so far today
Industrial Metals & Mining 3,136.21 +2.66%
Electricity 9,039.17 +2.05%
Forestry & Paper 8,051.59 +1.98%
Mining 20,272.29 +1.92%
Tobacco 37,512.67 +1.66%

Bottom performing sectors so far today
Fixed Line Telecommunications 2,902.84 -2.08%
Personal Goods 21,376.36 -1.14%
Real Estate Investment & Services 1,944.21 -0.84%
Industrial Engineering 8,631.36 -0.58%
Support Services 5,401.00 -0.44%

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Related share prices
Barclays (BARC) share price
HSBC Holdings (HSBA) share price
Lloyds Banking Group (LLOY) share price
Royal Bank of Scotland Group (RBS) share price