Three analysts give their current views on the top UK banks. The following six stocks, including HBOS, are down 42 per cent on average over the past year, compared with a FTSE 100 fall of 18 per cent – but are down just 5 per cent over the past three months, compared with a 19 per cent drop on the FTSE.
PK: This is the safe haven of all the banks and its rating reflects that. Household, its subprime subsidiary, continues to face significant challenges, but its global spread and well- capitalised balance sheet make it a core hold.
RH: In spite of being the first UK bank to flag subprime problems, its geographical diversification and the perceived strength of its balance sheet have left it well positioned for the long haul. A strong hold.
GS: I am more neutral on HSBC. There has been a slowing in its Far East markets business, plus it is exposed to the US housing market, so for me it is a hold.
RH: The group’s lack of exposure to the subprime fallout, coupled with its strong exposure to the buoyant Asian economies has meant that the stock is the most preferred in the sector, and has been for some time now. A cautious buy.
GS: This is a buy into weakness. It’s an emerging market play and has always been seen as a good way of gaining exposure to Far Eastern economies. But if you think there’ll be a global slowdown you should sell.
PK: Well capitalised, the recent 25 per cent pullback in shares leaves it on a slight discount to HSBC. A core buy.
RH: Lloyds’ perceived middle of the road and UK-centric approach has been somewhat vindicated by its lack of exposure to most toxic assets. A weak hold.
PK: The potential purchase of HBOS has increased the risk profile of the group by significantly upping the exposure to the domestic property market. A hold, but the risks have moved away from the previous “safe haven” status.
GS: I would hope there’d be some long-term value for investors as it’s creating such a goliath in the high street. But if you think the deal will go through on the initial terms, you should probably buy HBOS now rather than Lloyds as it’s trading at a discount to the terms.
PK: The purchase of Lehman Brothers’ US division is generally perceived to be one of the best deals in this downturn and has turned sentiment in favour of management. Overall, this becomes our preferred play outside of the obvious safe haven plays.
GS: If I had to go for one bank, I’d go for Barclays. It has cherrypicked some cheap assets with Lehmans, and it has good backing from overseas investors.
RH: The shares have recovered of late, with the market impressed by its acquisition of certain Lehman Brothers’ assets, rather than getting involved in a bail-out of the entire firm. A weak hold.
PK: While it raised the most money during the round of the capital raising exercises (£12bn), the extent of the problems at Fortis, its partner in the ABN Amro takeover, begs the question as to whether it will be enough. A weak hold.
RH: With hindsight, the ABN acquisition was ill-timed and overpriced. But the overall business model is well diversified and there is a tentative feeling that worries around the stock may be priced in, with the shares having fallen nearly 60 per cent over the past year. A strong hold.
GS: We’d avoid RBS at the moment because the timing of the ABN Amro purchase couldn’t be worse. Also at present there are problems with its Ulster Bank arm, with fears that people are switching into the government-
backed Irish banks instead.