Invesco Perpetual income guru Neil Woodford believes it will be at least another three years before the banking sector becomes an attractive investment prospect.
Speaking at the Fund Strategy Investment Summit in Austria recently, Woodford said the sector is still to fully recognise the extent of the damage from to their balance sheets, with more losses set to come.
He said banks will not only have to raise capital to offset those losses but will also have to be better capitalised in the future on the back of Basel III.
He said: “Instead of having capital to asset ratios of 2 per cent, there has been talk of capital to asset ratios of 20 per cent. There will also be more competition in the sector.”
Woodford, who once held as much as 30 per cent of his income portfolio in banks, said the sector is set for both domestic and international headwinds.
He said: “I see banks becoming a lower-return, capital-intensive industry and it is already priced for that in my view. To get to that, there will need to be more capital injections.”
Hargreaves Lansdown head of research Mark Dampier says: “Woodford is probably right. The truth is there are more att-ractive sectors in the market.”