£4bn man­ager: buy banks in mar­ket slump

The Daily Telegraph - Your Money - - YOUR MONEY - James Con­ning­ton

Buy bank shares if you think the stock mar­ket is go­ing to tum­ble, a lead­ing in­vestor has said.

Alex Wright (be­low), who over­sees £4bn for clients of fund group Fidelity, thinks fears sur­round­ing banks stem­ming from the 2008 fi­nan­cial cri­sis “loom very large”, but are mis­guided. In two of the most likely sce­nar­ios that could cause the next crash – ris­ing in­ter­est rates and an eco­nomic down­turn – he be­lieves banks would fare well.

He said banks have low debt and large cash re­serves, com­pared to the last cri­sis, and many bank shares are al­ready trad­ing cheaply com­pared to the rest of the mar­ket: “A gen­tle rise in in­ter­est rates would be very help­ful for the bank­ing in­dus­try, al­low­ing profit mar­gins and earn­ings to rise.”

In its re­sults this week, Lloyds posted its big­gest half-year profit in eight years, although it was be­low mar­ket ex­pec­ta­tions. If a mar­ket cor­rec­tion was caused by an eco­nomic slow­down or re­ces­sion, Mr Wright said banks cur­rently have a “very low level of risk com­pared to his­tory”. He said: “There is much, much less lever­age in the bank­ing sys­tem to­day than dur­ing the last crash. “In some cases, banks now ap­pear to be over-cap­i­talised, mean­ing reg­u­la­tors are al­low­ing them to dis­trib­ute prof­its and ex­cess cash to share­hold­ers. This should sup­port div­i­dends and share buy-backs for some time to come, cre­at­ing a de­gree of pro­tec­tion if mar­kets were to fall.” One ap­par­ent threat to banks is the rapid rise in con­sumer bor­row­ing, which the Bank of Eng­land voiced con­cerns about this week. There is par­tic­u­lar worry about car loans, but Mr Wright said this is not debt banks are in­volved with. How­ever, per­sonal loans, credit card debt and riskier mort­gage lend­ing are all com­ing un­der scru­tiny.

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