Bank shares - would you?

[Simpo Two]

The 22/23 ISA allowance needs to be invested somewhere. I wasn't planning to buy any bank shares, but seeing as they've had a battering after the demise of SVB, are they a 'bounce-back' opportunity like the shares in PH Recovery, or are they basically knackered for the forseeable? Ideally I'm looking for good dividend payers, or something that is likely to rise in value, or both...

Edited by Simpo Two on Saturday 25th March 17:20

[alscar]

I know nothing more than you do and maybe less but can’t help but think the reaction to both SVB and indeed CS is over done particularly as relating to the UK established Banks.
Not sure I see them as a dividend play necessarily though.

[Whoozit]

Traditional banks are a leveraged play on cheap money/asset prices going up forever. That's not happening for some considerable time.

Investment banks are a risk asset play. I've owned bank shares (because bonuses paid in stock) for years, sometimes selling. The share prices seemed mostly correlated to the number of known losses/fines/naughty behaviour in the bank, and nearly nothing to the actual performance.

Translation - it's a risky choice. A shame there aren't solid dividend payers like Lloyds back in the day. However there was a good reason it was yielding 10% in 2007/2008 - it was all about to go to pot.

[dvshannow]

I would not - maybe but at1s but pick good jurisdictions

Markets are a bit of a mess right now

[NowWatchThisDrive]

I'd like to think I have a reasonable idea of what I'm doing, and I've never had any appetite whatsoever for owning banks. They're political/regulatory footballs with inscrutably complex accounting, overly reliant on leverage and layers of management who are often at best improperly incentivised, at worst dangerous.

The only two I've ever owned were forced upon me as stock-based compensation, and one of them ended up at zero...that'll do for me.

[mids]

Short answer for me is no.

"Systemic risk", cascading failure, etc. Better explained by Terry Smith (with an amusing anecdote about a bank run in HK)

https://www.fundsmith.co.uk/news/2023/4933-financi...

[Piginapoke]

mids said:

Short answer for me is no.

"Systemic risk", cascading failure, etc. Better explained by Terry Smith (with an amusing anecdote about a bank run in HK)

https://www.fundsmith.co.uk/news/2023/4933-financi...

I’m in banking and I agree with Terry Smith’s article 100%. Banks’ leadership are simply managing decline in an increasingly hostile environment, avoid.

[Dylano]

Piginapoke said:

I’m in banking and I agree with Terry Smith’s article 100%. Banks’ leadership are simply managing decline in an increasingly hostile environment, avoid.

"Managing decline in an increasingly hostile environment"... Sounds to me like he's also perfectly describing his own fund and stock picks which are all largely reliant on a bull market fuelled by cheap money.

[Simpo Two]

Thank you all for your thoughts. They match the experience of a friend who inherited about £80K in (high street) bank shares about 15 years ago; they fell to about £30K. I still don't think they're back to where they were, but he says 'They'll come back eventually' and 'They'll pay dividends one day'. Maybe he doesn't want to crystallise the loss, but I'll avoid the loss in the first place and try to find a better home for £20K. (sensible thoughts welcomed)

[Jon39]

Simpo Two said:

The 22/23 ISA allowance needs to be invested somewhere. I wasn't planning to buy any bank shares, but seeing as they've had a battering after the demise of SVB, are they a 'bounce-back' opportunity like the shares in PH Recovery, or are they basically knackered for the forseeable? Ideally I'm looking for good dividend payers, or something that is likely to rise in value, or both...

I have held HSBC for yonks, as a core holding.
Excellent until this century began, but since 2000, would probably just give it an OK investment mark.
Present figures;
Pre-tax profit $17 billion.
PE = 9
Yield = 5%
Accounting is in USD, so that has considerably boosted dividends recently, for UK holders.
Anyway, that is all looking backwards, which is of no help to you. You are seeking a fortune teller. -

Although I hold, it does break one of my investment rules; I don't understand everything that they do.
The postman staggered towards my front door yesterday, with their (huge) Annual Report.
Just a glance through that, always makes me wonder. There cannot be anyone at HSBC, who fully understands every activity.





......................................


You might like to study this business. It has long been a favourite of mine and I keep adding when opportunities occur.
The pandemic was a shock though (the worst sector to be in), but the management really showed their abilities then and I was surprised how quickly the business recovered. A large international firm, but still plenty of further growth available in their market.

Compass Group plc

[rdjohn]

It could get no worse than 2008/9

Bank shares always bounce back - even if its so bad that governments have to bail them out

[Whoozit]

rdjohn said:

It could get no worse than 2008/9

Bank shares always bounce back - even if its so bad that governments have to bail them out

My Deutsche Bank shares are worth 10% of what they were in 2006 even after allowing for the capital raising dilution. JPM shares only up 150% in 25 years....

[rdjohn]

Whoozit said:

rdjohn said:

It could get no worse than 2008/9

Bank shares always bounce back - even if its so bad that governments have to bail them out

My Deutsche Bank shares are worth 10% of what they were in 2006 even after allowing for the capital raising dilution. JPM shares only up 150% in 25 years....

Spreading risk is important, trying to choose individual winners and losers is not easy for individual investors - markets are operated by professionals with good reason.

The first hit on Trustnet -

[Jon39]

rdjohn said:

... - markets are operated by professionals, with good reason

Here is just one example. Do you remember when those professionals sold Aston Martin IPO shares to their clients?
They must have laughed, whilst banking their fees though. There are of course motives at play, in the world of finance.
( That is not a hindsight comment, check the AM forum. )

Be wary when mysterious fund benchmarks are used.

As Charlie Munger once said, "We like to remain in the market very long-term and the reason we have grown rich, is because we are competing against idiots".

Edited by Jon39 on Sunday 26th March 16:38

[Heathwood]

Out of curiosity, what do we think about non-bank shares within the finance sector where the share price has nevertheless been similarly effected, e.g. Pru and Lgen?

[ev_buyer]

Deutsche Bank shares are defo worth a punt now. Fundamentals are way better than 7 years ago.

Yes I own shares in them and will be buying more tomorrow.

[NowWatchThisDrive]

ev_buyer said:

Deutsche Bank shares are defo worth a punt now. Fundamentals are way better than 7 years ago.

Yes I own shares in them and will be buying more tomorrow.

The problem with banks is that perception is ultimately the reality, as opposed to fundamentals.

[xeny]

NowWatchThisDrive said:

The problem with banks is that perception is ultimately the reality, as opposed to fundamentals.

Hence the amount of money spent making branches and head offices look good/imposing.

[xeny]

Simpo Two said:

try to find a better home for £20K. (sensible thoughts welcomed)

If I don't have a specific idea for some money but want to put it in equities, I by default put it in VWRL or similar. If I don't feel comfortable about that, I question if now is a time when I want to increase my equity exposure.

[Jon39]

NowWatchThisDrive said:

ev_buyer said:

Deutsche Bank shares are defo worth a punt now. Fundamentals are way better than 7 years ago.

Yes I own shares in them and will be buying more tomorrow.

The problem with banks is that perception is ultimately the reality, as opposed to fundamentals.

A rocky ride for both, but since 2000 the HSBC share price has beaten Deutsche, although both negative (excl. divs.).
When adding to existing holdings in Spring 2009, I did include HSBC, but admit that was not with confidence at the time, but a pure gamble, which I don't like doing. Many banks were in such a mess then, with dodgy mortgages packaged up as supposedly respectable bonds with fancy names.

An earlier 'hickup' (HSBC related) was the Midland Bank buying Crocker in the US. They were surprised to find, that they had bought a 'crock' of bad loans. While Midland Bank survived (by 1934, it was the largest deposit bank in the world), it was severely weakened and eventually bought by HSBC.

Banking has been described by one former bank CFO as being, "difficult to manage and there are a lot of low-quality people lurking everywhere".

Edited by Jon39 on Monday 27th March 09:18