Threadneedle financials specialist Chris White says banks could make a 15 per cent return on equity on a three to four-year view.
He says regulation could saddle UK banks with more cost but he is tipping the sector as a modest outperform. He says: “They are investable because they have been recapitalised and capital in UK banks is adequate now. The way to analyse banks is what are they going to earn in three years’ time? You can make a better stab when bad debts and impairments have worked their way through, profitability has been restored and mortgage books have been fully repriced.”
White manages Threadneedle’s UK growth and income, monthly extra income, managed income and UK overseas earnings fund. He favours Standard Chartered and HSBC as core long-term holdings, touts Barclays as “a trading buy” he is comfortable to buy now but may sell off fairly soon and says Royal Bank of Scotland and Lloyds are firefighting with their existing balance sheets.
He says: “You have got capital-raising from Lloyds, I think you might even have a capital-raising from RBS. In the short term, they feel quite volatile but on a three-year term you can see why they might be reasonable investments.
“I am happy to be overweight in the sector as I can see value in all the banks but some of the value is on a three-year view and some on a one-year view.”