QuotedData’s Matthew Read on the Global Financial Sector – It is more than 10 years since the Global Financial Crisis. You might have thought that the financials sector would have rebounded since then and would be back in favour with investors.
…There is a lingering negative sentiment towards the sector. After all, for many of us, the memories of crashing banks and insurance companies remain unpleasantly vivid.
…Managers at Polar Capital Global Financials Trust (PCFT), an investment trust with £272m of net assets and over 50% currently in bank stocks, still feel that the risk of a return to 2008 conditions in the banking sector is overstated.
Established banks are controlling risk better than before and this should stand them in good stead if the cycle turns.. the dollar value of US banks’ non-performing loans has dived from more than £350bn in 2009 to less than £100 bn in 2018.
Regulatory actions and bankers’ memories of how fingers were burnt in the crisis have curtailed bank lending over the past decade. General levels of borrowing are high but much of the debt is coming from non-bank lenders.
…The technological innovations offered by fintech can be and are being adopted by incumbent businesses…
…Sector optimists are probably right to think banks can sustain and even increase dividend distributions to shareholders. In the US, controls on the proportion of revenue that can be paid out as dividend have been lifted.
The banks have strong balance sheets and payout ratios in the US are fairly low even though the profitability of US banks is quite high. Returns on assets (ROAs) have recovered from their post-crisis lows.
…The story is not without risk, but it is definitely worth a look.
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