Speaking last week at a New Star manager question time, De Blonay warned that government-controlled financial institutions that have little prospect of near-term dividend payments are “difficult investments”.
He said: “They have to cancel their dividend for the next year or so and repay expensive preference share rates so it is very difficult to see any real interest as they have no income attached.”
He believes that global governments will take a more prominent position in the banking system in the second half of 2009 as they endeavour to stabilise their economies. He warned this could be to the detriment of shareholders as a shake-up in the bonus and salary structure of many firms could lead to an exodus of talent.
De Blonay noted that RBS’s efforts to repay government preference capital quickly in order to resume dividend payments in 2010 may bolster its position but he added that Barclays’ expensive dec- ision to raise capital independently may be the price to pay to retain talent.
He said: “Global financials that can avoid government intervention will be the survivors. They will be the major winners over the next year or two, will be the most profitable and are those to invest in.”
Informed Choice director Martin Bamford says: “I would not suggest steering clear of these stocks completely as, in a wider portfolio, they can still play a role but always as a long-term play rather than an immediate prospect of return.
“It is important to remember that all global financial stocks are suffering and they have got to get finance from somewhere so even if they do not get it from the government, it is still going to come with terms and conditions or at a cost.”