Will Investors Commit to UK Banks Again
There seems to be some sign of hope coming from professional investors as banks will be under the scope once again. Since the financial crisis, many have been skeptical and with good reason. Others are ready to get their feet wet again. The anticipation of the investors stems from the market reports and the temperament of the banks. Investors that took advantage of the discounted shares in Lloyds are looking forward to reaping real profits, however, they are weighing their options for other investments.
Optimistic Outlook for Banks
Most of the clinks have been resolved and this has provided much relief to investors. After the financial crisis, their ability to pay dividends had diminished. However, as the crisis has lifted, the banks are meeting and even surpassing their expectations and obligations. Restitution programmes and fines that were set up for payment protection insurance have come to a peak. According to the city regulator, the Financial Conduct Authority, there will time restraints on PPI claims that allows consumers until Spring of 2018 to file a protest.
Some fund managers are expecting banks, such as Lloyds, will be able to pay shareholders sooner rather than later. The manager of Fidelity Special Situations predicts that Lloyds will be able to support healthy dividends in a couple of years. Alex Wright (FSS) holds Lloyds in his funding account as well as HSBC and Barclays. He actually started…
“increasing positions in banks about 18 months ago. As their capital has improved to an appropriate level, they can now pay out more of that money to shareholders.”
Adrian Frost, manager of Artemis Income fund and Steve Davis, manager for Jupiter UK Growth, are also bullish about the forthcoming potential for banks.
Frost reports that he and others “have been waiting for banks to become boring again.” They believe that the banks have a better understanding on regulative authorities and this is likely one reason they are encouraging the future of banks. The financial crisis has given management and investors alike reason enough to respect investment banking and to rethink how business matters are handled.
Banks have been sound investments for those seeking a flood of liquid assets. Nonetheless, the crisis left many with sour stomachs and headaches. With a mess of fines and liabilities, the credit crisis troubled the market and created doubtful minds for a brighter future.
Neil Woodford, the manager of Woodford Equity Income Fund, sold his interest in HSBC about a year ago. He held it for over ten years, but decided it was time to let it go at the “risk of fine inflation in the industry.”
Does Lloyds Measure Up?
With a watchful eye on Lloyds, small investors are looking at their options with respect to the banking sector. The announcement was made that Lloyds would sell its shares to retail investors this coming spring and that those who participated would receive a nice bonus for every ten shares they bought and held for a year.
This doesn’t mean that Lloyds would be exempt from risks. As long as the shares stand at 5% at the time of purchase or increase to 15% while holding, all dividends will be paid. Some are concerned at the probability of a declining housing market and an increase of interest rates, which consequently will drive up the losses suffered because of faulty loans.
The Bank’s Assessment
Somewhere between October 28th and November 2nd, the banks will release financial data and investors and shareholders will rely on several key factors to give them insight into their future holdings.
The shared optimism surrounding Lloyds is that it will grow. It is expected to become a major player in the market and return investors a pretty penny. Currently, the share price is “being held back” due to concerns over PPI and the government’s authority regarding the sale. If Lloyds retains a low risk measure, the bank should be profitable in the future and have the means to pay shareholders without reserve.
Do They Compare?
Shares are over the price of their five year average, however, by a small margin. This should improve overall with emphasis on credit cards and retail banking as well as with its African division. On the other hand, there are sections that need revamping such as investment banking. This portion of Barclay’s business tends to lower the total outlook.
HSBC is thought to be a healthy and profitable business, even in the face of shifting toward Asia (markets are leery of this move) and since the share price fell.
The Royal Bank of Scotland hasn’t paid any dividends and it doesn’t expect to pay out until sometime in 2017, if at all that year. The forecast is not clear and earnings are at an all time low as the RBS attempts to sell off more assets to recover. With this said, their capital strength seems to be holding its own.
Standard Chartered is struggling primarily due to an increase in the amount of loans, which are in default. Keep lines of communication open for this one in the third quarter.