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 |  Subject: MoneyWeek's Wealth Assault #3 - The ‘Knock-Out’ Punch for UK Banks  Wed Aug 05, 2009 10:32 am | |
| by Toby Bray, Publisher, MoneyWeek
Extract from an article that covers 4 wealth assaults and 4 financial protection moves that will be posted here.Here's the wealth assault #3 : The ‘Knock-Out’ Punch for UK Banks Wealth Assault #3
The ‘Knock-Out’ Punch for UK Banks  | UK banks are still in deep trouble. |
If you believe most of the press, then the financial crisis is over. Your bank is solvent. Your savings are safe. Bank stocks are a screaming buy. The FTSE 350 Bank Index has nearly doubled in four months. Crispin Odey, one of the hedge fund managers who made a mint betting against the banks before and during the credit crunch, has now made another mint by buying them. His Odey European fund returned 30% in April alone. "I think this is the start of a long bull market," he says. Don’t buy this talk, reader. The UK banking sector is quite possibly in worse condition than a year ago.The UK Treasury says it won't be releasing details of the “stress” tests performed on Britain's lenders because they "may lead to uncertainty in financial markets... which could require further action by the authorities". Translation: UK banks are in deep
trouble. And the
Government would prefer
YOU didn’t know. . . Recently both Barclays and Lloyds spilled the beans about the state of their loan books. It wasn't pretty. Despite all the cheery chat about more loans becoming available, gross mortgage lending in April totaled £1.55 billion, down sharply from £3.92 billion a year earlier, according to data released by the Building Societies' Association. In March consumer credit lending fell 2%, compared to a near-9% annualised increase for the year before. Borrowers are defaulting in droves, leaving the banks with no choice but to batten down the hatches. Barclays has hiked its "impairment charges" - loan write-offs - by almost 80% in this year's first quarter. Overall 2009 loan losses are set to jump 50% on last year. Lloyds revealed that corporate bad loans are rising "significantly" and could also rise by 50% this year. And just to compound the misery, today Royal Bank of Scotland (another of our newly “nationalized” banks) admits that first quarter bad debts have quadrupled. With the dole queues lengthening fast and house prices falling, it’s no surprise, right?Taking all this into account, it’s clear we’ve barely seen the start of this banking crisis. So what does that mean for you?First and foremost, if you still hold bank stocks – or have been lured back into them – now is the time to SELL. Barclays is up more than four-fold in two months. Lloyds and RBS are 130% higher. "The market's got ahead of itself with the domestic banks", says Leigh Goodwin at Fox-Pitt Kelton. "When you look at the impairments, particularly on commercial loan books, this is a bit of a reality check". Take profits, reader – if you’re in the position to do so. And you might want to reconsider keeping any cash at all in a bank account in the year ahead. | |
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