Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Coronavirus Trend Trajectory Forecast Current State - 7th Apr 20
Boris Johnson Fighting for his Life In Intensive Care - UK Coronavirus Crisis - 7th Apr 20
Precious Metals Are About To Reset Like In 2008 – Gold Bugs, Buckle Up! - 7th Apr 20
Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time - 7th Apr 20
Was the Fed Just Nationalized? - 7th Apr 20
Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset” - 7th Apr 20
US Coronavirus Blacktop Politics - 7th Apr 20
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Banking Stocks - Is It Time To Buy?

Companies / Banking Stocks Nov 19, 2007 - 02:27 AM GMT

By: Nadeem_Walayat

Companies Best Financial Markets Analysis ArticleHaving warned of the problems facing UK banks back in August and specifically that by Northern Rock Bank, followed by subsequent commentary warning of the continuing crash in the finance sector. Now the sell off of all and sundry may present long-term opportunities in the hard hit sector.


Last Friday's action saw UK banking stocks take another pounding, as more rumors flew around the expectation of large multi-billion pound bad debt provisions. Globally trillions have been wiped off the financial sector, on the basis of a worst case scenario of some $400 billions of bad debt, to date some $45 billions of which has actually been reported. Even though the banks are not out of the woods yet with undoubtedly much more provisions for bad debts as the total losses are expected to pass $100 billion, and may even pass $200 billions over a 2 year period. However the degree of mark down has been particularly deep with banks now trading on ultra low P/E's of 8 or less and dividend yields approaching 5%. Therefore opportunities exist to pick up exposure to International Banks with sound business and managements for the long-run at rock bottom prices.

Therefore this analysis aims to identify the strongest banks, offcourse all of this analysis should be viewed in terms of a long-term basis as there is a great deal of short-term uncertainty volatility and risk, and anyone reading this article should definetly do their own research before coming to their own conclusions.

When considering banks to invest in, there are three clear indicators that I would look for.

1. Limited exposure to the UK housing market

2. Diversified International Business, especially with the far east interests.

3. Limited Exposure to US Subprime toxic waste.

Barclays - Rate 8/10

P/E 7.29, Yield 4.52, Share Price Down 36% From High, Last price 509

The bank reported bad debt losses of just £800 million, much less than speculation that ranged as high as £10 billions. The bank has an international exposure and represents good long-term value. Additionally its failure to take over ABN Ambro has resulted in immediate term strength given the tightening in the credit markets. It also offers the possibility that Barclays itself may be the target of a bid at some time, especially if the financial sector continues to tumble. Even if a bid does not materialize, the speculation of a bid could result in an overnight re-rating of this banks stock price. I would definitely view this bank as having strong long-term prospects.

Charts courtesy of bigcharts.com

Technical Analysis

The price chart implies support at £4.50, though if that failed to hold then the trend would target £3. The MACD is heavily oversold which implies the stock is due an sustained uptrend.

HSBC - Rating 7/10

P/E 12.33, Yield 3.9%, Share Price Down 16% From High - Last price 844

This is by far the strongest bank of this article and despite exposure to the US subprime mortgage market and bad debt provisions of $3.4billion, HSBC managed to report an increase in profits for the third quarter over last year. The US losses are far out weighed by profits from the asian markets with HSBC primed to benefit from $ hundreds of billions of chinese funds that is expected to flow into foreign investments.The bank is definitely a strong long-term play. The P/E on 12.33 is to large part discounting the relative strength of the bank, so its not exactly going cheap when compared to the likes of Barclays, hence the lower rating.

Technical Analysis

The share price is not exactly exciting, given the four year range of £8 to £10. Therefore does not imply an aggressive upward trend, but on the other side implies that there is little downside, with strong support along £8.

Royal Bank of Scotland (RBS) - Rating 7/10

P/E 6.57, Yield 4.74, Share Price Down 41% From High - Last price 426

It may take the bank considerable time to fully digest the ABN Ambro takeover, and therefore risks are associated with problems in that regard as it is unknown what subprime exposure ABN is bringing with it. Rumors are flying of bad debt provisions of as much as £10 billions, similar to those associated with Barclays and pressure is mounting for the bank to bring the statement forward. But the long-term prospects are strong for RBS as the takeover of ABN gives the bank a greater international exposure.

Technical Analysis

The share price has crashed, on the back of expectations of large bad debt provisions which implies the stock is due an sustained uptrend that could easily see the stock rally towards £5.50 in the near term.

HBOS - Rating 5/10

P/E 7.56, Yield 4.34%, Share Price Down 35% From High - Last price 759

HBOS is Britian's biggest mortgage bank. The bank has been in the process of diversifying its lending with a view to reducing exposure to the UK housing mortgage market. This is clearly in advance of a deterioration in the UK housing market which will lead to subsequent bad debt provisions and impact the bank's earnings over the next few years. A lot depends on how well the management will be able to diversify the banks business and how hard the UK housing market is hit.

Technical Analysis

The bank is in a clear downtrend, with the next support area of £7. The stock is extremely oversold and is due a rally towards £9. The subsequent action depends on whether the stock makes a base, over the last low, though at this point the best scenario would be a trading range of between £9 and £7 for this bank stock.

Bradford and Bingley- 3/10

P/E 7.22, Yield 4.87%, Share Price Down 44% From High - Last price 275

This bank most closely resembles the Northern Rock in that reliance on the money markets and high degree of exposure to the UK's speculative buy to let mortgage market, infact Bradford and Bingley is Britain's biggest buy to let mortgage bank. Therefore the bank is expected to experience extremely difficult trading during the next 2 years in the light of a declining UK housing market with higher perceived defaults amongst buy to let investors than home owners.

Technical Analysis

Bradford and Bingley has fallen to extreme multi-year support of £2.40. The impression is that the support is holding and therefore implies the stock is due a bounce or at the least make a base above £2.40. The longer-term prospects suggests a trading range of between £3.60 and £2.40. A higher target than £3.60 would require a change in fundamentals.

Alliance and Leicester - 2/10

P/E 6.30, Yield 6.19%, Share Price Down 50% From High - Last price 607

A&L has a high level of exposure to the US subprime mortgage backed securities market, as well as a specialized lender in the UK mortgage market opens up the bank to a double hit in the face of declining UK house prices. The bank has tried to diversify out of the mortgage business, i.e. into corporate banking but high exposure means profits will take a hit. The bank could follow the same path as northern Rock, but so far has denied rumors that it has been forced to go to the Bank of England for emergency funding. The risks associated with Alliance and Leicester are far too great to consider buying this bank stock at this time.

Technical Analysis

The stock price has crashed to 5 year lows. Support was at £8, which was sliced through with ease. the share price chart looks very weak. I would not be surprised if this stock went the same way as Northern Rock.

Conclusion

Prior to today's market opening, I am seeking to commit to long-term investments as part of an overall diversified portfolio in firstly Barclays and then secondly HSBC. Though I do accept that buying at this time is tantamount to catching a falling knife. But considering long-term investments of several years, the risks of further subsequent declines are acceptable for me.

By Nadeem Walayat
Copyright (c) 2005-07
Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules