While the much-maligned banking sector is still plagued by the seven-year shadow of the financial crisis, for some income investors there has been sufficient progress to warrant renewed interest.
Of course, the picture will be clearer by the end of the week, with Barclays, Royal Bank of Scotland and Lloyds all due to publish their interim results between 29 and 31 July. Though, figures aside, it is difficult to deny that the sector has been making tracks since 2008, both in terms of compliance and corporate restructuring.
But for Morton, manager of the Franklin UK Equity Income Fund, despite the ongoing flushing out of bad practice and the watchful gaze of the authorities, banks still have a long way to go before he begins to get excited.
“Banks in general seem to be behaving more sensibly than they were and there is a lot more regulation making sure of that, so there are some positives,” he said. “Nonetheless, banks are still difficult to predict and do not excite me.”
Morton cited a lack of clarity over business practice combined with asset imbalances as the main reasons behind his reticence.
“Banks are quite opaque institutions, and it is still really difficult to know what the drivers of what goes on in these organisations,” he expanded.
“In the past few years there have been so many things that have come out; the Libor-fixing scandal, PPI mis-selling, etcetera, and they have all come out of the blue – we have never really been able to get a handle on what is going on.
“These are huge liabilities and assets businesses supported by a relatively small amount of equity. It is much better than it was before the crisis, when banks were running a lot more debt and liabilities, but they are still very risky institutions.”
Despite heightened regulatory scrutiny around banks since the financial crisis, Morton believes that the slate is not yet clean, using Lloyds’ exposure to the UK mortgage market as an example of industry issues that still need ironing out.
