Regulation will bar banks' return to pre-crunch peak, says Stout

Investment banking is a potential value trap sector that will never recover to the level it once enjoyed, according to Bruce Stout, manager of the Murray International Trust.

Stout (pictured) questioned whether the investment banking business model could ever return in the same way, arguing that the degree of regulation that would envelop investment banks would stop them from making the sorts of profits they enjoyed before the downturn.

‘They won’t go back to levels of profits and return on equities they enjoyed before the credit crunch,’ he said. ‘The lending standards will be so tight they won’t be able to do anything.’

He said the scale of the credit crunch’s impact meant investors should be wary of value traps across all areas of the market. ‘There are lots of value traps emerging in industries that people think will go back to their previous glories but will probably not return to their heights,’ he said. ‘When there is such a big issue as has happened, some business models change irrevocably.’

But Stout maintained there were opportunities among some companies that were trading at low valuations. He cited Petrobras and Standard Chartered as companies showing good value.

‘The common theme is that they have been at the sharp end, or the perceived sharp end, of the collapse of growth,’ he said, arguing that valuations had reached a point where further news was having little effect.

Despite bearish outlooks for the UK economy, investors should not be blinded to some of the good opportunities presented by UK companies, according to Job Curtis, manager of the City of London investment trust.

‘There is a danger of confusing the UK economy with the UK stockmarket,’ he said. ‘Even if you can make a case for a bearish economy, it does not necessarily mean you should make the same case for a bearish stockmarket.

‘The large caps will be the best – they are the ones that are multinational. The smaller the company, the more oriented they are towards the UK economy.’