Banking Sector Spread Betting
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Banking Sector in Focus After Relaxation of Basel 3 Rules |
The gains seen in the banking sector over the past few weeks and months have been driven largely by reduced tensions in Europe with respect to fragmentation of the European banking system.
ECB President Draghi's dramatic intervention last summer to do "whatever it takes" to save the euro along with the introduction of the OMT program has assuaged investor concerns that the European banking sector could have fallen apart.
This financial back stop has helped banks recover strongly, while pledges from central banks and governments across the globe to keep monetary policy loose and pump liquidity into the system has helped banks rebuild their balance sheets.
Be that as it may, banks still remain reluctant to lend given pressure for them to rebuild their capital buffers which is why the recent relaxation of Basel 3 capital rules has helped in giving the sector an extra boost.
This decision has prompted a widespread reassessment of the UK banking sector in general. A raft of upgrades on the sector have helped push the share price values of Lloyds Banking Group, Royal Bank of Scotland and Barclays to their highest levels in months.
The end of the month will see the latest earnings releases for UK banks. However, the main question being asked by spread betting investors is how much upside is left given that the share prices of each of the banks up over 70% on a six month time frame.
Concerns are rising that with interest rates as low as they are, the scope for better bank profitability is likely to remain difficult, especially given the outlook for growth remains difficult. In fact Barclays is up 84%, Lloyds Banking Group, up 82% and RBS up 77%.
The key levels to observe are the 2011 highs which sit at 339.45p for Barclays, 69.85p for Lloyds and 49.5p for Royal Bank of Scotland.
Original article written: 24 January 2013.
Live Prices and Charts for Bank Shares |
If you are looking for the latest live prices and charts for UK banking shares please see:
Banking Sector Spread Betting Markets Set to Remain Risky |
Article as of: 3 July 2012.
Many commentators are saying now is the time to buy into banking stocks.
In the following article, Michael Hewson from CMC Markets believes the charts do not support this ‘buy’ message and urges investors to consider the uncertainty that will remain in the banking sector moving forward.
Concerns about Europe and exposure to the amount of bad debt on European banks balance sheets are quite enough for the banking sector to think about.
The current furore surrounding the LIBOR fixing scandal isn’t likely to change public perception of mistrust with respect to the problems facing a sector that has endured a torrid five years.
In mid-2007 the UK banking sector had a combined market value of over 11,000. It now trades at a mere 33% of that at 3,800.
Since the lows seen in 2009 at 1,877 the sector managed to recover to highs of 5,400 in 2010 and the beginning of 2011.
However, since then, the sector has remained under pressure largely as a result of events in Europe and the sectors exposure to potential sovereign insolvencies and insolvent banks in Europe.
Banking sector: 5 year chart
Banking Sector: Public Perception |
Public perception about the banking sector had already been fairly low after the events of the last few years, which in turn has prompted calls for much tougher regulation of the banking industry and the ‘too big to fail’ culture.
Certainly there has been a lot of criticism of the Vickers Report on banking with the watering down of some of the more controversial aspects of the report, including the separation of the investment banking and retail arms.
Banking Sector Spread Betting: Regulatory Spotlight |
Recent events with respect to the behaviour of banks in the UK over PPI mis-selling, interest rate swap mis-selling and now LIBOR fixing is likely to increase calls for much more regulatory oversight from regulators.
Calls would not only be for here in the UK, but also worldwide as public anger demands action from politicians anxious not to be seen to be pandering to banks vested interests and big business.
If you add to that, the controversy over the JP Morgan ‘London Whale’ trading losses which are expected to exceed $5bn, then you have a very toxic operating environment for banks in general.
This increases the risks of the sector being used as a political football by politicians anxious to deflect attention from their own shortcomings, inadequacies and policy failings.
You only have to look at Europe’s politicians and the proposed implementation of a financial transaction tax to see how much in denial these policymakers are with respect to their roles in the current European crisis.
Tuesday’s resignation of Barclay’s CEO Bob Diamond, while likely to draw a line under his role in the Libor fixing saga, is unlikely to be the end of the story for the banking sector.
There also remains the question of how much central bankers knew of what was going on and whether a blind eye was turned to the practice.
Regulators globally are now likely to focus their attention to the involvement of other banks and the likelihood of litigation as a result of any findings is likely to increase.
Any increased regulatory oversight is likely to increase the costs to the business models of banks and could also prompt much tougher steps to separate the business units of bigger banks, and even break some business units up altogether.
Banking Sector Spread Betting: Barclays - Where to from Here? |
Barclays spread betting market has certainly shown some resilience after its sharp falls last week and while some analysts are starting to break cover and tip the shares to move higher, the charts don’t support that view in the short term.
Barclays: 1 year chart
Since April, the price action has been firmly to the downside and while it remains in the downward channel from the March highs as well as the 200 day MA, the trend remains lower.
A move back above the 200p level could well stabilise in the short term.
As for the nationalised banks of Royal Bank of Scotland and Lloyds Banking Group, the risk remains that they too become embroiled in the LIBOR scandal with all the risks that entails for further share price gains.
The ironic thing is that any fines, if levied, will end up being paid for by the UK tax payer.
Future Profitability of the Banking Sector |
The main downside to all of this is that any future profitability of these banks is likely to be mitigated by stronger regulation as the banks riskier activities get pared back.
It therefore seems unlikely that, given the current environment, tax payers will see any return on their investment in either of these banks.
Banking Sector Spread Betting: Royal Bank of Scotland |
Royal Bank of Scotland: 2 year chart
Royal Bank of Scotland’s share price needs to get back to 550p to even get close to break even, which is more than double its current value of 218p.
A break above the 300p level would certainly help in stabilising the share price, but for now the range seems to be 175p, the 2011 lows, and the multiple highs this year around 299p.
Banking Sector Spread Betting: HSBC |
HSBC: 1 year chart
Even the HSBC shares spread betting market, which has found itself fairly insulated from the travails of the banking sector over the past few months, has struggled to make much in the way of gains above the highs seen this year at 588p.
If the current enquiries into other banks activities see the bank dragged into the LIBOR enquiry, further share price volatility in the sector seems likely.
The upshot is that the banking sector is likely to remain a fairly high risk sector going forward; with the likelihood of further regulation, possible litigation and further write downs of bad debt as economic conditions deteriorate in Europe.
According to BIS data, as of the end of 2011, UK bank exposure to Spain and Italy is estimated to be in the region of £90bn.
This raises the likelihood of significant losses especially if there is a restructuring of the Spanish banking sector further down the line, if economic conditions in the country continue to deteriorate.
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'Banking Sector Spread Betting' edited by DB, updated 25-Jan-13
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