Neptune star manager Robin Geffen’s call for investors to sell their exposure to banks which do not cut their dividends this year has divided advisers and fund managers.
Geffen, who runs the £562m Neptune income fund, told the Unique Boutiques conference in London last week that financials will be the big call this year, with many European banks still to reveal the full extent of their sub-prime damage.
He said: “A responsible bank will have to halve its dividend this year. If not, I would strongly suggest that an investor sells it, as the banking sector needs to clean up its balance sheets and get its house in order.
“At present, bank earnings and price/earnings ratios are inaccurate because of these pressures on the market.”
Schroders income manager Nick Purves believes that banks are elevating yield by over-distributing.
He says: “Some dividend yields look good on an historical basis but some banks are under-capitalised and should not be paying that current level of dividend. They could rebuild that capital ratio level but that would be at the risk of the dividend, hence we have not been putting money in bank shares.”
Hargreaves Lansdown investment manager Ben Yearsley says further falls are not a certainty. He says: “I do not believe it is guaranteed that banks will have to write off things but there is an uncertainty as to how low these falls will actually go. I am not as bearish as Geffen because if these banks are correctly valued, then there is an upside.”
T Bailey fund manager Jason Britton says: “Financials are the big issue of 2008 but each bank really needs judging on an individual basis as we do not know if all the bad news is out there.”