Threadneedle points to banking sector recovery

19/08/2009 10:03

The extreme stress faced by the banking sector a year ago seems to have abated with concerns over capital disappearing, says Threadneedle. 

The fund manager said the banks’ capital troubles had been helped by large rights issues and the introduction of the government’s Asset Protection Scheme.

However, in a study of the sector, Threadneedle said profitability was still difficult due to the low level of interest rates, and low mortgage volumes. 

Christopher White, UK equities fund manager and banking sector specialist at Threadneedle, said: "Barclays’ results highlighted the strength of investment banking over retail banking.

"Investment banking has undergone a surge in profitability as capacity has reduced in the sector and pricing has improved. 

"The new issuance activity in credit and equity markets, combined with market volatility and a flood of liquidity being put into economies by central governments, has meant record profits for investment banking divisions at many banks including the likes of Barclays and Goldman Sachs.

"The only question is one of sustainability into the second half of the year."

However, White added the story was different at the government-owned banks of Lloyds and Royal Bank of Scotland . 

Lloyds reported poor underlying results but with an optimistic outlook statement.

RBS’s results were downbeat with a gloomy outlook. 

"The future remains uncertain. The economy may ‘double dip’, causing further stress in terms of bad debts," said White.

"We do not know how the banking market will look going forward in terms of regulation of capital, liquidity or remuneration. 

"Will the government try to reduce its funding support for the banks sector at some point? We may not have seen the last of the capital raisings if Lloyds decides to pull out of the Asset Protection Scheme and regulation forces up capital requirements for banks.

"However, the extreme stress that the sector faced a year ago has abated."

 EGI News