Normally bearish Societe General has released a research note saying that Barclays and Lloyds were its top picks in Europe, because after the US Savings and Lona crisis banks picked up pricing power as their competitors went out of business. Separately Citigroup moved HSBC up to Buy from Hold. The management is good according to Citi and it has good prospects in Asia.
However, I am amazed the analysts get away with these notes. All of our banks are highly exposed to the on rushing European Sovereign Debt crisis. They hold billions in gilts and other securities for their clients and on their own trading books. The exposure to Ireland alone has been hammering RBS and Lloyds share price recently.
Worse is to come as the inevitable clash between the market and the politicians hits home. I confidently predict a big run on the stock markets, followed by a political resolution that is finally, satisfactory and then a run up again of the markets. The Banking sector will lead both the dip and the run up. With the dip likely to take the FTSE to well under 5000 and maybe to touch the high 4000's, banks will be at least 20% off where they are now. Barclays back to 250's and RBS to the low 30's for example.
So why buy the shares now, in a few weeks or months there will be a golden buying period for Financial Services shares; but it certainly is not today. As well as this there is a banking commission in the UK which will probably help to improve high street competition, so a repeat to US Savings and Loans experience is also not that likely either.