Illsley said many investors are looking strongly at Lloyds as it is viewed as the bank furthest down the recovery track. And, at less than one times its book value it is on the cheap side.
But, he added: “It feels like quite a consensus trade at the moment.”
More broadly, he told Portfolio Adviser he has a meaningful position in HSBC, which he says reflects his constructive view on the outlook for emerging markets to which the bank is heavily exposed. He also likes some of the so-called, challenger banks, like Bank of Georgia.
It Is not, however, just equity managers’ eyes that are going to be turned to the sector this week. Bondholders have done very well in recent months from certain bank issuances. And, according
Filippo Alloatti, senior credit analyst at Hermes Investment Management, there remain compelling opportunities.
“While the sector continues to face existential threats, we believe institutions, such as the ECB, will act to contain any potential contagion risk, and that sector fundamentals have created a number of selective global investment opportunities from a bondholder’s perspective,” he said.
On the question of margins, Alloatti said that while “low rates will continue to subdue profits and balance sheets face a death by a thousand cuts” it will take a very long time for that subdued profitability to “really imperil a bank” which bodes well for bondholders.
He also is of the view that the sector may have peaked on non-performing loans in some regions.
“Barring any global catastrophe or deep recession, we predict a slow and incremental improvement in asset quality in some peripheral countries. That said, the sector faces a long and challenging road ahead as bad loans will have to be worked out of the system. This presents a heterogeneous test for global banks, as countries such as Ireland, Portugal, Italy and the US face idiosyncratic risks. This further highlights the need to take a long-term, selective approach to the sector.”
