One of the world’s largest investment banks and financial services companies, Morgan Stanley, has recently downgraded AIB’s stock rating. The firm’s analyst, Alvara Serrano, downgraded AIB’s stock rating from equalweight to underweight, while keeping the price target at €4.
In the investment industry, referring to a security as underweight indicates that the expected return is below the average return of the chosen industry for comparison. It suggests a prediction of poor performance.
Morgan Stanley analysts noted that AIB may experience further earnings momentum in the short term, but they believe its earnings are more cyclical than the market assumes. The analysts also mentioned that AIB’s capital distribution might be slower compared to its peers.
Interestingly, Bloomberg reported that the downgrade by Morgan Stanley to underweight is the only negative rating among the analysts tracking AIB.
On the other hand, credit rating agency Standard & Poor’s (S&P) has upgraded its view on the creditworthiness of the three listed Irish banks, including AIB. S&P has raised the standalone credit profiles of AIB and Bank of Ireland by one level to BBB+. This upgrade is a positive development and indicates that higher interest rates, along with the banks’ focus on cost reduction and business consolidation, will improve their operating profitability.
S&P also revised its economic risk score for the Irish banking sector from ‘4’ to ‘3’, with ‘1’ being the lowest risk. This places Ireland in the same risk group as countries like the UK, Israel, and Korea.
It’s worth noting that S&P’s upgrade in credit profiles for AIB and Bank of Ireland is significant, as it places them seven levels below the top AAA rating. Additionally, S&P raised PTSB’s credit profile by one level to BBB-.
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