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Banks suspend Dividends

88V8
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Re: Banks suspend Dividends

#352157

Postby 88V8 » October 31st, 2020, 11:16 am

ADrunkenMarcus wrote:..... there's a serious question about whether capital would be better directed into share buybacks at these prices. We have banks such as STAN trading at c. 0.4 times book value.

GoSiegen has long been an advocate of buying bank ords for this reason, in preference to the Prefs that I prefer.

But I do wonder about the validity of the NAVS.

V8

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Re: Banks suspend Dividends

#352168

Postby scrumpyjack » October 31st, 2020, 11:51 am

Bank balance sheets are pored over very carefully by regulators etc and there are very detailed rules on reserving etc so I think the NAV figures are probably fairly accurate. But they are the net of huge asset and liability figures which stretch over many years forward. They cannot be turned into cash in the short term. A sudden liquidation would incur many costs that would make the NAV evaporate.

Banking consist of a wide range of financial activities some of which are profitable and some not (eg Paypal, Mastercard, Visa etc all do extremely well!)

It would be interesting, to put it mildly, if one of the big banks (Barclays?) were to announce that having looked carefully at their business, they could no longer justify using shareholder funds on activities which carry so much risk, are so unprofitable, and so subject to political interference. The valuation by the market of their business at only 40% of asset value demonstrates this. They have therefore decided gradually to withdraw from all money lending activities, close all their branches and return capital to their shareholders. This process will take many years but the board are clear that this is the direction that best serves shareholders interests.

Imagine the glorious political stink that would follow!

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Re: Banks suspend Dividends

#352176

Postby dealtn » October 31st, 2020, 12:12 pm

scrumpyjack wrote:Bank balance sheets are pored over very carefully by regulators etc and there are very detailed rules on reserving etc so I think the NAV figures are probably fairly accurate. But they are the net of huge asset and liability figures which stretch over many years forward. They cannot be turned into cash in the short term. A sudden liquidation would incur many costs that would make the NAV evaporate.

Banking consist of a wide range of financial activities some of which are profitable and some not (eg Paypal, Mastercard, Visa etc all do extremely well!)

It would be interesting, to put it mildly, if one of the big banks (Barclays?) were to announce that having looked carefully at their business, they could no longer justify using shareholder funds on activities which carry so much risk, are so unprofitable, and so subject to political interference. The valuation by the market of their business at only 40% of asset value demonstrates this. They have therefore decided gradually to withdraw from all money lending activities, close all their branches and return capital to their shareholders. This process will take many years but the board are clear that this is the direction that best serves shareholders interests.

Imagine the glorious political stink that would follow!


Interesting you don't see "money lending" as profitable.

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Re: Banks suspend Dividends

#352493

Postby GoSeigen » November 1st, 2020, 4:58 pm

Dod101 wrote:Like everything at the moment things are changing so quickly that it is impossible to know and very difficult to speculate about what is likely to happen.

Dod


Wasn't that long ago that you were pretty sure that banks were crap and you couldn't see how they could make a profit. What has changed to quickly?

GS

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Re: Banks suspend Dividends

#352505

Postby Dod101 » November 1st, 2020, 6:43 pm

GoSeigen wrote:
Dod101 wrote:Like everything at the moment things are changing so quickly that it is impossible to know and very difficult to speculate about what is likely to happen.

Dod


Wasn't that long ago that you were pretty sure that banks were crap and you couldn't see how they could make a profit. What has changed to quickly?

GS


If you can find that as my quote please let me see it. It does not sound like my phraseology.

Dod

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Re: Banks suspend Dividends

#352718

Postby GoSeigen » November 2nd, 2020, 3:40 pm

Dod101 wrote:
GoSeigen wrote:
Dod101 wrote:Like everything at the moment things are changing so quickly that it is impossible to know and very difficult to speculate about what is likely to happen.

Dod


Wasn't that long ago that you were pretty sure that banks were crap and you couldn't see how they could make a profit. What has changed to quickly?

GS


If you can find that as my quote please let me see it. It does not sound like my phraseology.

Dod


I didn't quote Dod of course it was my recollection of his views, FWIW here they are in his words, from HYP practical:


Dod101 wrote:... I do not agree with GS that banks are or were a good investment for anyone not even the dedicated HYPer. With or without the intervention of the bullying PRA they have not been much of an investment since at least the financial crisis of 2008/9. I cannot see Lloyds being much good even after/if they restore their dividend. Everyone talks of a recession if not worse and for a bank totally depended on the UK economy where are the profits going to come from? HSBC is probably going to be just as bad with or without the China/Hong Kong problem. I will at least reduce my exposure but will see if the price recovers a bit first. ...
[My bold]

Dod101: as I said, you were not so circumspect about this a few months back when you argued UK banks are a bad investment, what has changed to make it "impossible to know and very difficult to speculate about what is likely to happen" at this time? Covid is better understood and coming to an end, an EU trade deal is about to be resolved and anyway no more uncertain than back then.

To me it seems that UK bank shares are available at amazing prices, their capital levels are high, their assets good quality, their banking operations conservative, they're engaging in cost-cutting and profit margins are somewhere near their lows. So: A. What's not to like? and B. What exactly is impossible to know or speculate about?

GS

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Re: Banks suspend Dividends

#352725

Postby Dod101 » November 2nd, 2020, 4:00 pm

Well now GS, you are commenting after very much better than expected Q3 results. England has just gone into another lockdown (of sorts) and we do not currently know when the Covid business is going to end nor what the real cost to the banks is going to be. I guess I wrote what I did more or less at the peak of pessimism but banks are in a strong reserve position at least partly because they have paid no final dividend for 2019 nor any dividends for 2020 so far. Capital values are very low at the moment and it may be that we will see an uptick when they do resume their dividends but that is one major thing not to like about them at the moment.

RBS and Lloyds are no better an investment now than they were a year ago and HSBC is not much better either although the rapid recovery in the Far East should help it. I still think that things are changing very rapidly and it is very difficult to meaningfully speculate on where things are going.

I do not have all the answers and have never claimed to be infallible so I am not sure of your point.

Dod

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Re: Banks suspend Dividends

#352727

Postby scrumpyjack » November 2nd, 2020, 4:04 pm

dealtn wrote:
scrumpyjack wrote:Bank balance sheets are pored over very carefully by regulators etc and there are very detailed rules on reserving etc so I think the NAV figures are probably fairly accurate. But they are the net of huge asset and liability figures which stretch over many years forward. They cannot be turned into cash in the short term. A sudden liquidation would incur many costs that would make the NAV evaporate.

Banking consist of a wide range of financial activities some of which are profitable and some not (eg Paypal, Mastercard, Visa etc all do extremely well!)

It would be interesting, to put it mildly, if one of the big banks (Barclays?) were to announce that having looked carefully at their business, they could no longer justify using shareholder funds on activities which carry so much risk, are so unprofitable, and so subject to political interference. The valuation by the market of their business at only 40% of asset value demonstrates this. They have therefore decided gradually to withdraw from all money lending activities, close all their branches and return capital to their shareholders. This process will take many years but the board are clear that this is the direction that best serves shareholders interests.

Imagine the glorious political stink that would follow!


Interesting you don't see "money lending" as profitable.


Well it was their lending activity which nearly brought them down in 2008 and resulted in HMG’s rescue/takeover. It is their lending activity now which results in the BoE banning dividends to make sure they have enough capital to cope with future bad debts. Lending can appear profitable until you take into account the future bad debts, or that I suspect is the market’s view. Yes they have had other catastrophies, notably PPI, but it is lending that seems to get them into the deepest trouble, and which I think results in the market valuing them so abysmally.

The turnround in banking has been just around the corner ever since 2008 but never actually materialises. Shareholders would be justified if they took the view that they would rather have their money back and do something else with it.

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Re: Banks suspend Dividends

#352733

Postby dealtn » November 2nd, 2020, 4:24 pm

scrumpyjack wrote:
dealtn wrote:
scrumpyjack wrote:Bank balance sheets are pored over very carefully by regulators etc and there are very detailed rules on reserving etc so I think the NAV figures are probably fairly accurate. But they are the net of huge asset and liability figures which stretch over many years forward. They cannot be turned into cash in the short term. A sudden liquidation would incur many costs that would make the NAV evaporate.

Banking consist of a wide range of financial activities some of which are profitable and some not (eg Paypal, Mastercard, Visa etc all do extremely well!)

It would be interesting, to put it mildly, if one of the big banks (Barclays?) were to announce that having looked carefully at their business, they could no longer justify using shareholder funds on activities which carry so much risk, are so unprofitable, and so subject to political interference. The valuation by the market of their business at only 40% of asset value demonstrates this. They have therefore decided gradually to withdraw from all money lending activities, close all their branches and return capital to their shareholders. This process will take many years but the board are clear that this is the direction that best serves shareholders interests.

Imagine the glorious political stink that would follow!


Interesting you don't see "money lending" as profitable.


Well it was their lending activity which nearly brought them down in 2008 and resulted in HMG’s rescue/takeover. It is their lending activity now which results in the BoE banning dividends to make sure they have enough capital to cope with future bad debts. Lending can appear profitable until you take into account the future bad debts, or that I suspect is the market’s view. Yes they have had other catastrophies, notably PPI, but it is lending that seems to get them into the deepest trouble, and which I think results in the market valuing them so abysmally.

The turnround in banking has been just around the corner ever since 2008 but never actually materialises. Shareholders would be justified if they took the view that they would rather have their money back and do something else with it.


I guess we have to disagree.

From the inside it wasn't the lending activity that brought down Bank's in the financial crisis in 2008, nor was it really a huge problem in the early 1990s recession when I entered the industry. I don't see lending as a huge factor in the current dividend "ban" either, although it is arguably too early to really know yet.

There are many profitable years to offset the bad ones, a bit like insurance companies in that respect. I can't see a serious claim that over the economic cycle lending as being unprofitable. Even the "horrific" mortgage books at Northern Rock, and Bradford & Bingley that lead to their "collapse" have turned out to actually be profitable.

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Re: Banks suspend Dividends

#352738

Postby johnhemming » November 2nd, 2020, 4:39 pm

scrumpyjack wrote:It is their lending activity now which results in the BoE banning dividends to make sure they have enough capital to cope with future bad debts.


I am with dealtn and GS on this. Banks will generally have made a profit this year even with the restrictions from Thursday. As soon as we have sufficient certainty that Covid is essentially over (in the sense that governments will stop responding with silly policies) then the prices will recover. Some certainty on Brexit will also help.

Without Brexit uncertainty and without Covid I would think Lloyds, for example, would be in the 70-80p range. If they don't need any capital then I am happy to be on the bus towards that destination.

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Re: Banks suspend Dividends

#352741

Postby scrumpyjack » November 2nd, 2020, 4:46 pm

johnhemming wrote:
scrumpyjack wrote:It is their lending activity now which results in the BoE banning dividends to make sure they have enough capital to cope with future bad debts.


I am with dealtn and GS on this. Banks will generally have made a profit this year even with the restrictions from Thursday. As soon as we have sufficient certainty that Covid is essentially over (in the sense that governments will stop responding with silly policies) then the prices will recover. Some certainty on Brexit will also help.

Without Brexit uncertainty and without Covid I would think Lloyds, for example, would be in the 70-80p range. If they don't need any capital then I am happy to be on the bus towards that destination.


Well I hope you are right as I still have shares in Barclays and Lloyds, but the City knows the banks inside out and it has decided to value Lloyds at a fraction of price you suggest.

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Re: Banks suspend Dividends

#352746

Postby johnhemming » November 2nd, 2020, 5:00 pm

scrumpyjack wrote:Well I hope you are right as I still have shares in Barclays and Lloyds, but the City knows the banks inside out and it has decided to value Lloyds at a fraction of price you suggest.

I am long in both LLOY and BARC.

The market sells known unknowns. However, I would not expect LLOY for example to beat 60p until 2022.

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Re: Banks suspend Dividends

#352755

Postby dealtn » November 2nd, 2020, 5:12 pm

ReallyVeryFoolish wrote:
johnhemming wrote:
scrumpyjack wrote:It is their lending activity now which results in the BoE banning dividends to make sure they have enough capital to cope with future bad debts.


I am with dealtn and GS on this. Banks will generally have made a profit this year even with the restrictions from Thursday. As soon as we have sufficient certainty that Covid is essentially over (in the sense that governments will stop responding with silly policies) then the prices will recover. Some certainty on Brexit will also help.

Without Brexit uncertainty and without Covid I would think Lloyds, for example, would be in the 70-80p range. If they don't need any capital then I am happy to be on the bus towards that destination.

Hoping you are right on that. The present situation with bank dividends seems entirely politically inspired and little or nothing to do with reality. That it's a tory government that has imposed it's will via the regulator "to be seen to be doing something" tells me a great deal about where we are with politics these days. I was very happy that LGEN faced down similar actions.

RVF


Didn't realise the Tory government had the ability to affect bank dividends all across the EU.

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Re: Banks suspend Dividends

#352829

Postby GoSeigen » November 3rd, 2020, 5:21 am

scrumpyjack wrote:
Well I hope you are right as I still have shares in Barclays and Lloyds, but the City knows the banks inside out and it has decided to value Lloyds at a fraction of price you suggest.


Without evidence this really is pure guesswork. How does anyone know what "the city" value bank shares at? Let's assume the city is smart money which I think is what scrumpyjack is suggesting. First, why would they tell anyone honestly what they think bank values are? And second, surely if their value of the banks is 2-3 times higher than their current price (like johnhemming), then surely they would just stay schtum and steadily buy from the bulletin-board punters who think banks are a rotten investment?

So how can anyone say with any certainty what value the city ascribes to banks?

GS


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