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Manager focus: Ian Henderson

With banks in America starting to report near record profits, some investors are starting to wonder whether it’s time to start looking at the sector once more.

Ian Henderson, manager of the JP Morgan Global Financials Fund, says the recent news out of American banks, including paying back government bailout money, gives investors reason to be positive.

“I think at the end of the day the ability of some of the participants of the Tarp [Troubled Assets Relief Program] to pay it back is a strong signal of things turning around,” he says. “It’s quite interesting to think that there have been cases in the past where companies have been helped out [by governments] which in the end were hugely profitable.”

Henderson says he is supportive of the extraordinary actions taken by central banks to avert a systematic failure in the financial system, as a run on the banks similar to that seen in the 1930s “would have caused unimaginable chaos”.

He is less supportive of credit rating agencies, who have been vilified in the press for their perceived failure to identify the risks of some asset classes. Henderson says that they did play a part in the origins of the crisis.

“[Ratings agencies] are there to think outside the box, but they were slow to realise the interdependence of many different factors,” he says. “I think at least for the time being the complacency of relying solely on ratings agencies has gone. The issue really is whether they should have any liabilities for their decisions, like in accounting.”

Henderson says if they had been subject to legal controls and were held accountable for the credit deterioration then it is unlikely they would have remained in business.

The panic in the market following the collapse of Lehman Brothers in September last year meant that picking the strong banks from the weak, in terms of off-balance sheet liabilities, became a difficult task. Henderson says the fund suffered because he could not run an un-invested portfolio despite the collapsing share prices across the sector.

Since March, however, financials have rallied strongly and the fund is up 67.05% from trough on March 9 to July 16. Signs that credit markets are starting to thaw, albeit at a modest pace, have given investors hope that a price can be found for so-called ‘toxic’ assets sitting on banks’ balance sheets.

“I’m sure write-ups will happen,” says Henderson. “This process of revaluating underlying value will continue, but it’s a difficult task. A lot of these assets have got fairly long lives, but as time goes by things will become clearer about who needs to pay and who doesn’t.”

He says he modestly increased his exposure to American banks in May and has full confidence that they will return to “reasonable margins” in the near future.

“Coming back down to earth is necessary as hopefully the boil has already been burst,” he says. “You’ve got to be prepared to buy these developed market banks because there will be a banking system so they will survive.”


Related Articles:
Manager focus: David Dudding
Manager focus: Chris Price

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