Big news in the bank­ing sec­tor

Mort­gage data and Fi­nan­cial Pol­icy Com­mit­tee re­port put spot­light on the sec­tor

Shares - - BIG NEWS -

Re­cent data presents dif­fer­ing views on the health of the UK’s high street banks. The Bank of Eng­land’s Fi­nan­cial Pol­icy Com­mit­tee (FPC) re­leased a re­port on 25 September sug­gest­ing that grow­ing consumer debt could pose a ma­jor threat to the cap­i­tal po­si­tions of Bri­tain’s big­gest banks if there was an eco­nomic down­turn.

Shares in some of the largest high street banks took a small hit when the re­port was pub­lished. Bar­clays (BARC) fell 1.1% to 189.4p and Lloyds (LLOY) shed 0.8% to 66.41p.

Se­cured lend­ing is also hit­ting the head­lines. Fig­ures re­leased by bank­ing trade body UK Fi­nance on 26 September said mort­gage lend­ing in Au­gust rose to its sec­ond high­est level since April 2008.

The last time mort­gage lend­ing went above £24bn in a month was in March 2016, when prop­erty buy­ers rushed to avoid a hike in stamp duty. Lloyds is the largest mort­gage lender by cap­i­tal yet has also been grow­ing its consumer credit divi­sion through the ac­qui­si­tion of MBNA’s credit card busi­ness. This the­o­ret­i­cally puts the bank at a greater risk if, as the FPC warns, a mar­ket down­turn does oc­curs. We pre­fer Vir­gin Money (VM.) as an in­vest­ment. It has an es­ti­mated 3% UK mar­ket share in mort­gages. In­vestec an­a­lyst Ian Gor­don says the FPC state­ment ‘in­di­cates a pri­mary fo­cus on higher risk lend­ing and/or any loos­en­ing of un­der­writ­ing stan­dards. This is not Vir­gin’.

On a val­u­a­tion view, Gor­don says Vir­gin trad­ing on 5.3-times fore­cast 2019 earn­ings of 50.2p is ‘ab­surd’. His 395p tar­get im­plies up­side of nearly 50% ver­sus the 267.4p price at the time of writ­ing. (DS)

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