UK Banks filled to bursting

At the end of last week I made a small purchase of some banking shares, the first time in over a year for me to buy into British banks. Until now there was just no security in owning them. This week is going to be a watershed though. HSBC announced a big hike in profits today, with less exposure to the US Household business the future is set fair for them. Also Lloyds, RBS and Barclays are all expected to report good profits for the first half of 2010.

The reaction in the market has been quite spectacular with the FTSE up 2.5% at the moment - there is of course always a lot of volatility in the summer months when volumes are low and a few big trades can really move prices.

Nick Drew wrote earlier about the Banks getting off lightly with Basel III and this is being built into share prices too. There is now just one thing hanging over the banks, the closure of Government cheap money support and a move back to funding from the markets for their balance sheets. This is a big deal as the wholesale markets remain comatose since the Financial Crisis began. Perhaps the Bank of England will extend the credit (after all, this makes the taxpayer money as the it is lent above LIBOR).

More importantly, the Government can begin to think about a disposal of its shareholdings as the banks move to profitability. Moving too soon is not possible, but perhaps by the year end things will look different. A healthy set of clearing banks is utterly central to any UK wide economic recovery.

The new will be even better if they get broken up in the process...but that is one thing I am not gambling on as my faith in Vince Cable to achieve anything at all is zero.

In terms of trading, there is still a good window this week for buying into the rising trend.