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Banks


M S E Refugee
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M S E Refugee

Are they worth investing in?

Nobody really seems to mention investing in Bank stocks on this forum, surely there must be some bargains out there.

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RBS, BARC, HSBA, LLOY, and to a lesser extent MTRO all show the same chart pattern. Flat/down, then big drop.

One has to ask how are the banks going to make money for their shareholders - haven't they been told to stop paying dividends?

As more people bank online, I believe there is less room for for people to be sold banking financial products and services (which in essence brings in more profits), like in the old days when people pop into branches.

So yes, they maybe cheap now, but they could be in this lull for a little while.

Please state a bull case though!

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M S E Refugee
1 hour ago, 201p said:

RBS, BARC, HSBA, LLOY, and to a lesser extent MTRO all show the same chart pattern. Flat/down, then big drop.

One has to ask how are the banks going to make money for their shareholders - haven't they been told to stop paying dividends?

As more people bank online, I believe there is less room for for people to be sold banking financial products and services (which in essence brings in more profits), like in the old days when people pop into branches.

So yes, they maybe cheap now, but they could be in this lull for a little while.

Please state a bull case though!

I have bought some shares in Raiffeissen and Erste as they mainly focus on Banking Services in Central Europe which is a market that I think has great potential for long term growth.

I have also bought a few shares in Swiss Bank Julius Baer as the Swiss will make money however bad things may become.

I'm also looking at Lloyds,HSBC,Wells Fargo and Bank of America.

 

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  • 3 months later...

Where did banks make their huge profits?

In stable, western societies (and Japan/Korea) where credit cards, personal loans, and mortgages could be sold to million and hundreds of millions who had no starting debt.  

That well is tapped out.

The ability to do that in other societies is limited due to very different attitudes to debt, honesty, etc.

The other area was trade finance and FX.  Huge income streams.  Now FX has been eaten by small players, specialised for customers (I haven't used a bank to move money for 15 years).  Trade is going the same way with blockchain driving the costs down incredibly.

Meanwhile, regulatory and other costs continue to rise.

In short, banks are fucked.  Is we get inflation and interest rates up to 10%, that will help a bit, but the underlying market is gone.  In my view, 1980-2001 will never return.

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  • 3 weeks later...
On 29/08/2020 at 07:37, sancho panza said:

The banks are more overleveraged than 2006.Be careful out there.

not strictly true - they have increased capital levels hugely since the GFC.  However, the amount of potential losses still outstrips the capital by many multiples.

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6 hours ago, wherebee said:

not strictly true - they have increased capital levels hugely since the GFC.  However, the amount of potential losses still outstrips the capital by many multiples.

The whole paper is worth a read.

http://eumaeus.org/wordp/wp-content/uploads/2020/05/Can UK banks pass the COVID-19 stress test 6 May 2020.pdf

The core metrics of the Big Five UK banks have deteriorated sharply since the New Year, and even more since the end of 2006, i.e., the eve of the Global Financial Crisis. Their market capitalisation is now £140.6 billion, down 61% since December 2006; their average price-to-book ratio is 39.2%, down from 255% at end 2006; their average capital ratio, defined as market capitalisation divided by total assets, is 2.3%, down from 11.2% at the end of 2006; their corresponding leverage levels are 43.3, up from 8.9 (end 2006). By these metrics, UK banks have much lower capital ratios and their leverage is nearly 5 times what it was going into the previous crisis.

These metrics indicate a sickly banking system. If the banks were in good financial shape, their PtB ratios would be well above 100% and their capital ratios well above current levels. Traditional rules of thumb also suggest that leverage levels should be no greater than 10 or 15 to be considered safe.

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