Goldman Sachs Raises UK's Lloyds Bank to 'Buy'

Goldman Sachs raised British bank Lloyds Banking Group to "buy" from "neutral," adding it to its conviction buy list, the bank said in a research note quoted by Reuters.

Lloyds Banking Group's shares topped the FTSE 100 index Monday after the upgrade, rising 6.1 percent.

Part-nationalized UK banks Lloyds and Royal Bank of Scotland are expected to report credit losses below their European peer group average by 2011, the report said.

"Lloyds has historically delivered among the highest ROEs and asset margins of all the large European banks and we believe it should be able to do so again," Goldman said in a note to clients quoted by Reuters.

Goldman Sachs raised Royal Bank of Scotland's price target to 41 pence ($0.67) from 36 pence previously but kept its "neutral" rating on it.

It raised its price target for Lloyds to 107 pence from 61 pence, while it reinstated Barclays with a "neutral" rating.

Sharon Lorimer

Meanwhile, Lord Davies, the former head of Standard Chartered and UK trade minister, was offered the post of chairman of Lloyds Banking Group, but is likely to turn down the offer, according to a report by the Independent on Sunday.

Lloyds Banking Group was formed last year after the merger of Lloyds TSB with HBOS, which was in danger of collapsing because of its exposure to mortgages which were hit by the financial crisis.

The UK government, which nationalized failed bank Northern Rock at the beginning of the crisis, later had to take on substantial stakes in Lloyds Banking Group and Royal Bank of Scotland to help them stay afloat amid the turmoil.