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
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.
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