8/12/2009

Time to buy bank shares?


There is one way to profit from banks’ bumper profits – buy shares in them. A couple of months ago few pundits would have been recommending investors pile into the financial sector, after all Northern Rock and Lehman Brothers had collapsed completely, RBS had to be bailed out by the Government, HBOS was forced into an humiliating merger with Lloyds TSB, who then subsequently needed Government assistance – and dividend payments were cancelled virtually across the board. Banks were at the sharp end of the financial crisis, were leading the stock market south.

But as some of the profits posted this week prove, fortunes can be made – as well as lost – quickly.No one is suggesting investors should buy bank shares indiscriminately. As the results from Northern Rock, Lloyds TSB and RBS prove it is a pretty mixed bag. And those banks in which the Government still owns a large stake – such as RBS – are unlikely to start to paying dividends any time soon.

Nic Clarke, a banking analyst at stockbrokers Charles Stanley said: “We are more positive on HSBC and Standard Chartered, which also unveiled excellent results this week.”

At the other extreme are RBS and Lloyds, which the broker rates as a “hold”. Given the problems with these banks Mr Clarke is not recommending investors buy into these banks. But he added: “If you already hold these shares there seems little point in selling now.” He points out that the share prices in both banks has risen fourfold since their low.

Graham Spooner, an investment adviser at The Share Centre said these are promising results “but it is not all good news”. He points out that profits at Barclays UK retail arm have fallen significantly, while the bank’s bad debts continue to rise. Meanwhile HSBC is also suffering from hefty losses in the US, although its Far East operations continue to perform well.

As a result he says he would only recommend Barclays shares, and then only to higher risk investors. For low-to-medium risk investors he says both Barclays and HSBC remain a “hold”.

2 komentara:

  1. Very detailed information about overall how banking profits works. It never seemed that profitable before but after reading this blog post I am convinced that I should buy bank profits too.

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