Is the Outlook Really as Bad as It Seems for the Banking Sector?

Is the Outlook Really as Bad as It Seems for the Banking Sector? By Filipe R Costa I'm not really a bank investor but when everybody is pessimistic about European banks, the alarm bells ring in my head and I'm tempted to oppose the herd. If there's profits to be made, it is often via the ugly improving to just bad and not so much via the good improving to even better. Banks are caught in tough economic conditions, their share prices are depressed, and their business models need a revamp; but they're still in much better condition today than they were in 2011-12 during the sovereign debt crisis. Maybe it is too soon, but I feel we may be approaching the time to add some European bank shares to the portfolio and keep them for quite some time. I believe we are approaching the end of the line for monetary policy rate cuts, which have been depressing banks' profits and doing nothing for the consumer, while some fiscal measures may start to replace them and seriously boost demand. If we compute the total return provided by the STOXX Europe 600 Banks Index, the FTSE UK Banks Index and the FTSE Italy Banks Index for the last 10 years, we end with the following numbers: -58.8%, -53.3% and -79.3%, respectively. If we instead take the worst of the sovereign crisis as our basecamp, prices are up by 26%, 15% and 23%, respectively; but such numbers seem light given the previous losses and, in particular, the improving solvency conditions in the sector. The 48 European banks that are part of the Stoxx 600 Banks Index (which includes UK banks, by the way) currently trade on an average price-to-book ratio of 0.69, which means that, on average, banks are destroying shareholder value every time they spend/invest one euro or one pound. Banks are worth more dead than alive… Click Here To Read The Full Story The Master Investor Market Report The FTSE 100 closed the day at 6,914.71, an increase of 48.29 points. The FTSE 250 rose 107.88 points to finish at 17,807.56 The FTSE All Share climbed 24.94 points to finish at 3,757.32. The FTSE AIM All Share finished at 778.91, up by 1.97 points. Shares in FTSE 100 financial services firm Old Mutual (OML) dropped by 8.60p to 216.90p after the company said that ongoing investigations by the Financial Conduct Authority could delay its planned break up. Management believe they are still on track to complete the process by the end of 2018, but warned that there may well be some delay. Operating profits for the first half of 2016 dropped by 9% to £709 million, significantly below what analysts had forecasts.  Get our August issue while it's hot! Click HERE to read. Furniture retailer DFS (DFS) has reported that revenues for the financial year ended 31st July rose by 7% relative to the prior period. Growth was steady throughout the twelve months and as a result of this, management believe that profits will be towards the upper end of prior forecasts. The company is aware of the risks of a slowdown in the UK markets following the vote on the 23rd of June, but to date there has been no tangible reduction in demand. The shares climbed 15.6% to 258.90p. Greetings specialist Card Factory (CARD) saw its share price drop by 6.31% to 298.50p after it said that its revenue growth slowed to 4.8% during the six months ended 31st July, from 8% during the equivalent period of the prior year, despite the company continuing its store opening programme. Management said that the trading environment had been challenging, but added they remain confident in the firm's medium-term prospects. Tomorrow's news today FBD Holdings (FBH) will release interim results. Quote of the day "Never trust a computer you can't throw out a window." - Steve Wozniak Latest Stories Chart of the day: British American Tobacco By Zak Mir The success of Fever Tree Drinks (LON:FEVR) over the past year reminds us, if it were necessary, that so called "sin stocks" of all shapes and sizes can be a great asset class to invest in. On this basis British American Tobacco has to be regarded as a core holding… Click Here To Read The Full Story Caledonia Mining: Is the Optimism Justified? By John Cornford Writing in the Magazine this month, Richard Gill has re-iterated his bullish view for Caledonia Mining (AIM:CNCL) after its substantial bull run. I have to disagree. While the company was an obvious beneficiary back in January of any improvement in gold... Click Here To Read The Full Story The Evil Diaries: The Person from Porlock By Evil Knievil As some readers know, the Person from Porlock came to Coleridge's door as he was writing Kubla Khan. The interruption caused Coleridge to lose his train of thought with disastrous circumstances… Click Here To Read The Full Story Sherlock Homes & the Mystery of Rising Debt & Falling Rates By Victor Hill A dialogue between the Master and his trusty sidekick, Dr Watson, at 221B Baker Street, unpacks the most intriguing paradox in contemporary economics. Rising government debt levels should drive interest rates higher. Instead, interest rates are plunging to zero and below… Click Here To Read The Full Story Chart of the day: G4S By Zak Mir Looking at the daily chart of G4S, we have a disturbingly accurate picture of the perceived fundamentals of the company, at least in term of sentiment amongst investors. The question now in the wake of today's chart gap is whether this is the lasting turnaround the bulls have been waiting on?… Click Here To Read The Full Story Join the movement on social media: Copyright 2016 Master Investor Ltd, All rights reserved. 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