Is the Time to Invest in Banks approaching?

mrposhman

gozomark wrote: »

its difficult to see anything other than lower house prices for atleast a few months, just because house prices take a while to adjust downwards, unlike share prices. How much is definitely finger in the air now (and always)

Thats true, they will likely fall further but nobody knows how far.

My point that bringing credit back to the cycle could stabilise house prices, I believe is still valid.

As I alluded to above, this recession brings us very low interest rates an some people will choose this to be a time to trade up (once credit starts to flow a bit more readily) and will fix their mortgages at nice low rates for a portion of time. This will in effect, provide a better house but not at an exorbitant interest rate.

Theres no point comparing falls in housing prices this time around as its a different type of recession to the ones we have had in our most recent history.

Theres good arguments either way, but having people coming on here stating they will definately fall a long way hardly aids a discussion as frankly no-one knows what will happen.

ashm1

I don't think they'll be paying dividends any time soon so IMO it's just a speculative punt. These banks were technically insolvent wern't they? Overseas cash rich investors have been burnt so capital will likely come from the government / tax payer IMO.

Everytime I think about buying bank shares a new rescue comes along. Think the last rescue / save the world lasted 3 mths.

mrposhman

ashm1 wrote: »

I don't think they'll be paying dividends any time soon so IMO it's just a speculative punt. These banks were technically insolvent wern't they?

Using your philosophy then no-one would ever buy shares that don't provide dividends. You are assuming thats the only reason for buying shares, but capital gains are another reason. They were technically insolvent, but its also built on expectation. Its the worst case scenario that all your liabilities become payable immediately. I would think there would only be a handful of businesses worldwide that have the ability to repay all their liabilities with liquid assets.

ashm1 wrote: »

Overseas cash rich investors have been burnt so capital will likely come from the government / tax payer IMO.

I assume your also talking about the cash rich arabs invested in Barclays. Well I would think a 14% guaranteed return on their preference shares is quiet a good bit of comfort in these tough economic conditions.

sabretoothtigger

afaik lloyds is issuing free shares in spring

mrposhman

sabretoothtigger wrote: »

afaik lloyds is issuing free shares in spring

free shares? do you mean free as in no cash, or not 25p ordinary shares but all premium?

If free, i don't understand why as all this will do its reduce the share value further.

sabretoothtigger

Hbos did this in the autumn I think, Im not sure how the price goes it hard to tell when they fell like a stone anyway but I guess the value issued exceeds the fall but ex div share price falls anyway

http://moneyterms.co.uk/scrip-issue/

sdooley

if it was just about buying what everybody else is selling you would have boght NR, B&B, and Lehman, and you'd be rich now, no?

I don't know about Lehman, but people who bought bonds/PIBs from NR/B&B could have doubled their money or more if they bought when everyone else was selling. It's probably silly/speculative to buy any financial stock at the moment, but if you wanted to speculate on a bank not being nationalised, the safest way to do it would be by buying its listed debt, not its shares (and the higher up in the capital structure the safer).

Why do I say this? Because of a misunderstanding in a post above:

The gamble is whether RBS avoids nationalisation. If it does, then buying RBS at 10p or 12p is a gamble that will pay off, even if we have to wait a while.

As an equity holder, nationalisation is not the only risk that could wipe you out. There is also a risk of a massively dillutive rights issue or a massively dillutive debt for equity swap, either of which could remove 90% to 99+% of your upside with no compensation (on nationalisation there could be some compensation). As a debt holder a debt for equity swap is also a risk but generally debt holders come out better from the process than equity holders - see Marconi - and the more senior you are in the structure the better.

mrposhman

sabretoothtigger wrote: »

Hbos did this in the autumn I think, Im not sure how the price goes it hard to tell when they fell like a stone anyway but I guess the value issued exceeds the fall but ex div share price falls anyway

http://moneyterms.co.uk/scrip-issue/

Thanks for the link. I get it now. Just a transfer from revaluation or share premium account to share capital.

Decadent_Fool

I've invested in 10,000 Lloyds Banking Group shares on Tuesday @ 49.7 pence.

Why?

My reasoning is that the government would not let a banking group like this fail or be nationalised as it would be a massive blow to the governement; they clearly discussed the level of bad debt and the Lloyds TSB business plan when they asked them to take over HBOS, which was smoothed over with no monopolies and mergers review.

In addition, the banking group (as well as all UK banks) have access to substantial funding from the government, and the fact that it has already taken up a load gives me confidence that they're prepared to acknowledge and address their weaknesses. Now, any remaining bad debt has been insured against as well by this weeks new package to the banks! No other business has this sort of funding stream or fail-safe!

I've initially purchased with a view to 5-10 year capital gain, during which time I'm sure the governments preference shares will have been paid off; this must surely be a priority for the group, as it would want to bolster its shares by getting investors who want a dividend, which can't happen while the preference shares are owned. As for dividend...well, you could look at Lloyds TSB's traditionally high dividend in the region of 30+p per share. If I got £3000+k a year, great, but I'm not foolish enough to look to the past.

Ultimately, I believe that 50p per share in what is now the UK's largest banking group, that has an enormous funding stream, full insurance for all its bad debt, and business model vetted and approved by the UK government, is an absolute bargain.

I don't expect anyone to agree with me, but you're never going to secure your future by following the herd...I believe it was the herd that got us into this mess.

gozomark

as long as you see it as £ 5,000 you no longer have, then you might well be in for a nice surprise, but there is a real risk that you will never see your money again.

There is also the risk that the bank's market cap will be alot higher in a few years than now, but that you will own a smaller %age of it as new shares are issued.