Morgan Stanley has raised its share price target on Royal Bank of Scotland – parent of Coutts, the UK private bank – to 50 pence from 40 pence, preferring this firm over rival Lloyds Banking Group.

Both Lloyds and RBS are partly owned by the UK government, which bailed them out with public funds over a year ago amid the financial crisis.

Morgan Stanley has an “equal weight” stock recommendation on RBS and Lloyds. Among some of the big UK banks, the Wall Street firm says it is still most bullish on Barclays and has an overweight recommendation on its stock.

There remain reasons for being cautious about UK banks, however, Morgan Stanley said.

“In general we believe it is premature to move overweight UK banks, and RBS in particular, until we see more clarity on the regulatory burden and significant improvements in revenue growth,” said Morgan Stanley analysts Steven Hayne and Chris Manners in a note.

Morgan Stanley said it raised its price target on RBS due to an improvement in its earnings per share forecasts on the stock and also in a change to its methodology in valuation of RBS.

However, the report added: “With an election now scheduled for 6 May, the political backdrop is important to the banks' performance in the near term. A hung parliament would be most negative as it would risk destabilising the recovery, damaging the investment case for UK banks, but Lloyds in particular, in our view, as a more pure play UK bank. Revenue headwinds and refinancing risks over the next few years also remain key concerns, together with a higher regulatory burden.”