Tuesday 11 January 2011

UK FTSE Banks riding for a fall

The UK Banking sector has had a big push today. 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.

7 comments:

Budgie said...

CU, I like your clarity and integrity but I am not sure I agree with you on this.

I agree that we should be "amazed the analysts get away with these notes". I accept your view of the "on rushing European Sovereign Debt crisis". Indeed the vast western government and personal debt gives me vertigo.

But the big unknown is not the euro sovereign debt crisis itself, or poor bank analysis, but the timing of it.

I tend to think the 'colleagues' will not allow an immediate crisis to develop over Portugal or Belgium, or even Spain. Maybe they will manage to put it off for the moment. You are right - it's coming, but later: autumn this year perhaps?

CityUnslicker said...

Hedge Funds have the short positions now, not sure they will hold them for the year. Which means if your right then perhaps the Banks will shoot ahead for a bit?

Jackart said...

What about standard chartered? They should escape the crunch unscathed...

I suspect the guess is that the Euro will survive without a soverign default, this time.

Dick the Prick said...

The QE2 figures seem to have worked and if the Euro was gonna go it would have gone by now. The political capital is immense.

Budgie said...

CU, are the Hedge Funds short on just the (euro exposed) banks, or other areas as well? If just banks, I too would steer clear of them at the moment.

If you feel the euro will cause sovereign debt crises in the next few weeks, which will then hit the banks, which will pull the FTSE down to sub 5000, what are you doing with your portfolio? Selling up?

Dick the Prick said...

What was that about only 2 soverign funds in credit by 2050?

Anonymous said...

A lot of this debt problem is not what is on the balance sheet, though that can be bad enough, it is what is not on the balance sheet, banks do not include everything on their balance sheets (a bit like Thatcher, Major, B'Liar and Brown's PFI) hence we have the strange episode of Northern Wreck with accounts in Jersy, it should be obiligatory on directors of companies and banks to use a standard type of balance sheet and show TRUE values of assets and liabilities on pain of being sent to choky for 10 years, and be personally be liable for false statements given.