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View the article online at http://citywire.co.uk/wealth-manager/article/a615821

Fidelity’s Shah: why I back Lloyds and not Barclays

by Emma Dunkley on Sep 05, 2012 at 11:01

Fidelity’s Shah: why I back Lloyds and not Barclays

Fidelity’s Sanjeev Shah is backing Lloyds Bank in the view it is a three to four year recovery story despite regulatory headwinds on the horizon, although he does not find Barclays attractive.

The manager of the £2.3 billion Citywire Selection Fidelity Special Situations fund said since the problems in 2008 and 2009, Lloyds has seen its capital, funding and operational performance improve significantly and that it is a ‘three to four year type of equity story’.

In a conference call he said: I’ve recently met three people in Lloyds in its key management team – Mark Fisher in charge of integration of HBOS and Lloyds, the head of retail and its CEO Antonio.

‘All the things they are doing operationally and strategically in the franchise – things are getting significantly better,’

He said the bank is taking significant market share in deposit gathering, while provisioning ratios continue to come down, which serves as a decent tailwind for earnings.

‘In funding, they are ahead of the curve and capital ratios have improved dramatically from levels in 2008,’ Shah added.

Even in the unlikely, worst case scenario where house prices fall by 18%, and unemployment goes up to 10%, Lloyds would have to raise £9 billion more in capital, which would push returns out to 2016.

‘Even in that scenario fair value for that company is 38p,’ said Shah. ‘So the downside risks are very well underpinned.’

In contrast, Shah said he has ‘less exposure’ to investment banks such as Barclays and believes regulation will increase and create stronger headwinds.

Conversely, SchrodersRichard Buxton has been backing Barclays, buying more of the bank on weakness, the moment Bob Diamond said he had resigned.

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2 comments so far. Why not have your say?

Luckycontrarian

Sep 05, 2012 at 11:31

The Lloyds CEO is Antonio. I don't agree with Sanjeev at all, to be loaded with Lloyds and RBS and all their UK exposure versus a global investment bank (granted with Eurozone exposure) with potential to be broken down into different tranches (a positive in my book) seems myopic. You can be as supportive of management as you like but the strategic direction is more important.

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Gillian Cardy

Sep 08, 2012 at 10:56

And they are interesting comments re business growth in the light of the other Lloyds story reporting FSA investigations into staff sales incentives ...

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