'How the perceived villains of the financial crisis have fared 10 years on'

 

Bank

20/4/07 share price

6/3/09 share price

26/4/18 share price

% gain/loss since 6/3/08

JP Morgan Chase

$42.53

$15.93

$110.10

+591%

Citibank

$516.00

$10.30

$69.18

+571%

Bank of America

$50.42

$4.05

$30.07

+642%

Wells Fargo

$35.05

$12.95

$52.44

+305%

Goldman Sachs

$206.50

$98.80

$240.09

+143%

Morgan Stanley

$68.82

$25.05

$52.20

+108%

HSBC

925.5p

411.75p

709.90p

+72%

Lloyds Banking

383p

31.20p

64.90p

+108%

Barclays

701p

69p

210p

+59%

RBS#

580p

21.8p

27.40p

+25%

Standard Chartered

1275p

598.9p

748.80p

+25%

UBS

CHF64.53

CHF 15.10

CHF16.70

+11%

Deutsche Bank

€76.87

€17.09

€11.83

-31%

Credit Suisse

CHF 82.00

CHF22.48

CHF17.00

-24%

UniCredit

€356.00

€46.44

€18.17

-61%

Societe Generale

€158.42

€29.01

€45.54

+55%

BNP Paribas

€81.04

€29.25

€63.24

+116%

Santander

€8.71

€2.79

€5.39

+93%

BBVA

€14.92

€3.75

€6.54

+74%

Tokyo Mitsubishi *

Y1187

Y419

Y746

+78%

 

This schedule does not take in to account rights issues, share splits in the case of RBS an injection of capital, which many of these banks required, which makes the recovery performance depressingly modest in many cases. Yesterday’s share price was 273.40p

 

*denotes 5/10/2007 date of merger – share split

 

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We are heading towards the tenth anniversary of the global banking crisis. The collapse of this sector and the subsequent credit crisis was initially laid fairly and squarely at the feet of Sub-prime lending in the US. As far as the US was concerned this was probably true, but it was not the case here in the UK and Europe.  It was a more complex issue than that simple statement suggests. The world had been through a long cycle of easy credit conditions, the acquiescence of most Central banks, soft regulation, poor credit analysis and excessive borrowing by governments, companies and the consumer, all of which found access to excessive credit, an indulgence they could not resist.

 

Three of the main UK banks – Lloyds Banking Group, Barclays and RBS have just submitted their first quarter numbers. In isolation they were acceptable. Lloyds posted a 24% increase in pre-tax profit to £1.6 billion for the 1st quarter, BUT another £90 million provision was made for PPI, making a total to date of a staggering £18.8 billion. However, since we are a decade on, it is extraordinary that Lloyds Banking Group has only been away from the bosom of the taxpayer for about a year, admittedly at limited cost to the taxpayer.  In the case of Barclays; it wrote off a $1.4 billion fine for toxic US mortgage backed security sales and another £201m impairment charges, resulting in a pre-tax loss of £236m for the quarter. Many investors are excited about Barclays recovery, but want a conclusion to the Qatar financing deal, involving the Staveley £1.5 billion claim and clarification on Edward Bransom’s bizarre plans to break up the investment banking division, which has been such a huge contributor to profits in the last decade. 

 

Today RBS posted a decent pre-tax profit of £1.2 billion with costs down £442m in the first quarter However, clarification over the Department of Justice’s substantial claim is needed for RBS to make contingency plans for its on-going business, in terms of ownership. The cost of the bail-out in 2008 together with a decade of losses has cost the taxpayer close to £100 billion. As for the taxpayer being recompensed that seems years away unless the government decide to take a hit! Understandably RBS’S demise has created enormous resentment from the public that have been adversely affected by a massive increase in unemployment and loss of earnings back in 2009, due to the banking crisis.  “Casino Banking” – Sir Vince Cable’s hackneyed and sneering terminology was according to most people, responsible for the collapse of the banking system in the UK.  Not so! Yes, RBS’S injudicious £26 billion purchase of ABN AMRO was in that category. However, who would have believed that the mis-selling of PPI would be responsible for £40 billion and that copious bad loans with inadequate credit analysis were the major culprits?

 

The fact that no senior bank official has been bought to book for these reckless misdemeanours, apart from a handful of regional bank managers and a few LIBOR traders and there is considerable doubt as to their guilt, has exacerbated the hostility that exists towards a few seriously over-zealously avaricious operators. However, without a solid and reliable banking sector, no economy can thrive. Since 2008 banks in the UK have not been great investments. Why? The Bank of England/FCA have dramatically increased capital adequacy.  Banks require ten time the amount of capital to do the same business they did ten years ago. UK domestic banks are hugely reliant on an almost grotesque level of mortgage lending.  They have not really engaged enthusiastically with SMES and the main banks are in competition with challenger banks. The competition from peer to peer lenders and more importantly technology, is fierce.  ‘Fintechs’ are muscling in on banking territory when it comes to newer products and services, like payment processing, if that service can stay clear of ‘cybercrime.’ Companies like PayPal, Alipay, and WeChat Pay are already in the space. There is no reason to suppose that Google, Apple and Facebook Inc could not take some the banks’ hallowed territory. 

 

It is generally acknowledged that those US banks that survived the traumas of 2008/9 recovered more quickly than their counterparts. The FED insisted on all major banks using TARP for the recovery process. Also let’s be candid without the introduction of quantitative easing in March 2009, the banking sector would have disappeared without trace! There were also several bank mergers. The possibility of a more relaxed regulatory environment under Trump, drove share prices up, though profits from trading have fallen sharply in recent months. Bank shares surged like grilse after the Presidential election.  In recent years Europe UBS, Credit Suisse have experienced desperate problems and have all been heavily involved in derivative trading especially Deutsche Bank. The Swiss CEOS Messrs Ermotti and Thiam have changed tack culturally away from investment banking focusing on wealth management and general banking. It has been a painful process and it will be another year before the fruits of their labours manifest themselves, with Deutsche some way behind.   With interest rates likely to rise in the years to come selective banks, according to some analysts may prove a decent investment. We shall see!

 

David Buik

Core Spreads

Core Spreads is financial trading as it should be. No noise – just tight spreads on thousands of markets..

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