There was a bit of a banking theme to the investment world last week.
The unsatisfactory result, from an investor’s perspective, in the Italian general election sent bank shares in Europe into a tailspin. Then there was all that talk about a financial transaction tax in Europe. The Royal Bank of Scotland posted some truly horrible losses. And finally Europe moved a step closer to putting a ceiling on bankers’ bonuses.
By and large the theme was pretty negative.
Banks were once the largest single sector in the FTSE 100 index and the source of much of the dividend income sought by UK investors. How the mighty have fallen.
It is remarkable to reflect that the global financial crisis had its origins around six years ago. Given the collateral damage caused by the need to rescue the banking industry, can there be any real wonder at the apparent disregard with which bankers are currently viewed.
Yet banks sit at the cornerstone of the capitalist system. Without them society could not operate.
How they behave is clearly an issue but much of what takes place in banking pays no regard to borders, nor is it constrained by geography. This is why regulating them is more than just a national – or even a regional – issue.
Unfortunately, politicians see them as an easy target, one which would earn plaudits from the electorate if attacked. But such efforts could so easily backfire.
I carry no candle for banks, despite having worked for two of the major players in this country. Indeed, given that on both occasions I found myself in that position as a result of my employer being taken over, you might even expect me to hold a similarly negative attitude to the bulk of people not employed in banking. I recognise their importance, though, most notably to the UK economy.
Whether this makes them a suitable investment right now is less apparent.
Stephen Hester, boss of RBS, gave an interview to the BBC last week in which he suggested his bank would be ready to be returned to the private sector within two years. Given that he had just announced a whopping £5.2bn loss for 2012, it was not unreasonable to conclude that the kitchen sink had been thrown in with the figures. And since RBS shares were still way short of the price at which we taxpayers took our controlling stake, perhaps there was some upside.
Perhaps there is, though it is hard to see why just now. While it is clear that some of the cultural shortcomings that clearly existed in the banks are at last being addressed, it is hard to imagine governments, most notably in Europe, letting them off the hook for a while. This means that the interests of shareholders are likely to carry little weight with our policymakers, except where they themselves are the owners of the businesses concerned.
It is rather sad to think that the real cause of these problems could be said to rest with these very governments which even now are trying to extract revenue from banks and constrain the ways in which they operate.
The indebted nature of western society owes much to politicians pandering to the demands of the consumer in the belief that, by keeping them on an apparently irreversible upward path so far as their living standards were concerned, they would continue to vote them back into power.
Many investment managers have found their performance damaged by the perverse behaviour of the banking sector. Some will doubtless be hoping the picture will brighten soon.
As a taxpayer, I sincerely hope the government does get its money back by selling on the shares they have acquired at a profit. As an investor, I’m not sure I will be rushing out to take them off their hands.
Brian Tora is an associate with investment managers JM Finn & Co