Tuesday, 28 January 2014

On Sky News' Jeff Randall programme (27/01/2014), re RBS loss

RBS's trading statement last night (27 Jan 2014) was a real shocker, confirming yet again that European banks (like US banks) are not yet out of the post-crisis maelstrom that has repeatedly engulfed them. For my part, I appeared on the Jeff Randall show on Sky News to discuss this unexpected additional collection of revelations, which will drive RBS to a massive loss for 2013 overall. 

A Banking Tale of Woe

Let's have a quick recap of all the various scandals that banks have been involved in of late:

1.  PPI insurance mis-selling;
2.  Credit card theft insurance mis-selling;
3.  Mis-selling of interest rate hedging products;
4.  Mortgage-Backed Securities misrepresentation (adequate disclosure not given);
5.  LIBOR interest rate fixing;
6.  Foreign Exchange rate fixing;
7.  Inability to apply current Money Laundering regulations in Mexico;

Actually, I have probably forgotten one or two more, as there have been so many... I haven't even included the latest statement from the German banking regulator BAFIN, who believe that investment banks have also been involved in rigging precious metals prices...

FULL DISCLOSURE at this point: I have in the past worked for Barclays Capital, one of the banks involved in these various issues. 

This gives local and EU-wide banking regulators yet another stick to beat the banks with, similar to JPMorgan's experience Stateside. 

Stick with UK Insurers

Given the choice, I would stick with my preference for Insurance stocks over Bank stocks any day, particularly in the UK. Banks still have to fully comply with Basel III capital requirements, not to mention increasingly tough regulatory scrutiny from local banking regulators. 
UK Insurers Beat Banks Hands Down!
My favourite UK insurers include the closed fund life assurance companies Phoenix (PHNX), Resolution (RSL) and Chesnara (CSN), all of which remain cheap on price/book and price/embedded value ratios, and all of which offer bumper dividend yields of 5.5% to 8%.

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