Too complex to fail
Neil Woodford, head of investment at Woodford Investment Management, who did buy briefly back into HSBC in late 2013, says he would need to convince himself that he understood once again how they made money before he would be able to go back into the big banks.
“It is not too big to fail, it is too complex. I think regulation has set out with the right ambition but has become a self-fulfilling prophecy. Using RBS as an example its stated accounts are around 550 pages long and 120 odd pages of supplementals in its pillar two report. I am not sure how anyone can penetrate that.”
The problem, Woodford said, is that these banks are now incredibly complex organisations with lots of unpredictable vulnerabilities relating largely to past misconduct and the capricious regulatory path and, of course, they are struggling in this increasingly extraordinary monetary environment.
“I am not saying that all banks are bad, but I think there are lots of better places to invest your money.”
Fundsmith founder, Terry Smith, agreed, adding: “The problem even in owning a great bank is systemic risk; if the banking system goes into crisis you will still be in trouble.”
And, on the evidence of this week, it would appear that, while not in as much trouble as they once were, the banking sector is by no means out of the woods.
