What Next for the Banking Sector?

Is Lloyds the barometer for what we can expect from the rest of the banking sector? Or are other financial stocks destined to lag behind the outperformer?

Emma Wall 20 February, 2014 | 7:30AM
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Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall, and here with me today is Guy de Blonay to discuss the future of the U.K. banking sector. Guy is Manager of the Jupiter Financial Opportunities Fund. 

Hello Guy.

Guy de Blonay: Hello Emma. Thank you very much.

Wall: So, your single sector fund has been invested in quite a difficult space over the last sort of decade, looking back to 2008 when banking stocks all fell considerably during the global recession. Since then, some have made recoveries. In fact, Lloyds (LLOY) has done especially well and made quite a lot of profit for the government and the public sector that owns it, but other stocks not so much. Is Lloyds the barometer of what we can expect from the rest of the U.K. banking sector or is it an individual case?

de Blonay: Well, a bit of both. I think what we've seen is a company that has managed to reposition itself within its core market, the U.K., and very much undertake a programme of reducing non-core assets, reducing costs and fine-tuning its profitability strategy within the U.K.

So, I think if you talk about barometer, it's very much a barometer, yes, where Royal Bank of Scotland (RBS), could very much follow. It will take a bit more time simply because it's a different type of company. It has an investment bank within it and that has to be decided what to do with it and that can cost money. Also it's been involved in many more, I suppose, growth strategies in the past outside the U.K. So you need also here a good understanding of the strategy understanding non-core assets.

But if you look at HSBC (HSBA) or Standard Chartered (STAN), these have bigger emerging markets exposures and one of them has very much pushed for revenue growth rather than profitability. And I think what investors have been rewarding over the years, especially the likes of Lloyds is very much this focus on profitability rather than revenue growth, where revenue growth means buying revenues at any cost. And that has been very much punished over the last two years.

So again, yes. To answer your question here, Lloyds could very much be an example or should be an example of what to come or to see or what to expect from other U.K. banks.

Wall: Guy, thank you very much.

de Blonay: Thank you.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
HSBC Holdings PLC671.10 GBX0.25Rating
Lloyds Banking Group PLC59.10 GBX-0.07Rating
NatWest Group PLC323.60 GBX-0.98Rating
Standard Chartered PLC723.40 GBX0.56Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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