As we approach the election, I continue my look at groups of companies operating in different sectors. Today, I’m looking at the banking sector and specifically:
The Story So Far…
Taking a quick look at the chart covering the last year, RBS has taken top spot. This, I’ll admit, took me rather by surprise. Perhaps the market has been impressed with results that weren’t quite as bad as expected. The shares, however, seem to have slid recently — possibly due to earnings downgrades and possibly due to the banking levy being raised from 0.156% of banks’ liabilities to 0.21% in the Budget last Wednesday. The wooden spoon goes to HSBC. It is perhaps hardly surprising that we have seen this weak performance with the recent allegations concerning the goings-on at its Swiss private client banking unit adding to its woes.
Both Barclays and Lloyds have broadly tracked the FTSE 100 over the last 12 months. I have to admit that I’m surprised Barclays share price has done as well as it has given the increased levy coupled with the plethora of additional cost from PPI to currency rigging allegations. Lloyds, on the other hand, has returned to the dividend list and profits are expected to increase further this year, placing it on a modest forward P/E of just under 10 times earnings and a forward yield of just under 4%
“Till the Pips squeak”
Some say that this was the phrase used by Denis Healey whilst Shadow Chancellor for the Labour at the party conference in 1973. Whilst this was denied by the Shadow Chancellor at the time, it is perhaps appropriate to use the phrase to describe Ed Miliband’s policy where the banks are concerned. Whilst George Osborne’s actions may well have taken some of the shine from Mr Miliband’s policy of raising the banking levy to extract over £3 billion per annum from the banks, Mr Miliband is also planning a specific bonus tax.
Even before the likely increase in the banking levy, should a Labour-led coalition claim the keys to number 10 then these new measures — which also prohibit the banks from off setting payouts for fines such as mis-selling — are likely to raise almost a billion pounds per year. Whilst it wouldn’t be difficult to make a case to justify such a tax, as an investor I have to say that I would feel slightly persecuted by these and possible measures going forward.
Sitting On The Sidelines… For Now
It is true that none of these banks look expensive at current prices; however, they could be cheap for a reason. I think that it’s fair to say that the result of the General Election will be hard to call, and I wouldn’t be at all surprised to see the waters getting rather choppy as we move closer to polling day. On that basis, I’ll be happy to sit and watch from the sidelines… and who knows, an opportunity may well present itself as we head to the polling booths.
