Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/wealth-manager/article/a702227
Fidelity star backs Lloyds to deliver double-digit returns on equity
by Robert St George on Sep 11, 2013 at 08:10
In a report last month, KPMG noted that the return on equity at banks like Lloyds had halved since 2005, from around 20% to less than 10%, ‘and this looks unlikely to reverse in the near term’.
Griffin estimated that the current return on equity at Lloyds was 8%, but he sees this climbing to between 13% and 15% in the quarters ahead, driven by higher demand for mortgages and cheaper wholesale financing.
‘The company has rehabilitated its balance sheet and made significant improvements operationally,’ Griffin said. ‘It now has the largest market share in UK retail banking, and is capitalising on this strong position.’
The partially nationalised bank has swung back into life this year, posting a statutory profit of £2.1 billion for the first six months of the year compared with a loss of £456 million during the equivalent period of 2012. Its share price has accordingly more than doubled over the past 12 months.
Griffin holds 6.6% of his portfolio in Lloyds, with another 7.8% in HSBC. ‘It is one of only three truly global banks, and it is unlikely we will see other global banks emerge with such a large international footprint again,’ he commented. ‘In a globalising world, it should be able to make the most of these international links to make strong returns for its shareholders.’
HSBC already boasts a 12% return on equity, almost twice what it was at the end of 2012, and its shares have gained 25% over the past year.
Despite these ascents, both still trade at modest forward price-to-earnings multiples – 11.1 for HSBC and 15.2 for Lloyds – and Griffin highlighted ‘historically low’ valuations as an additional attraction.
‘We believe that the UK banking industry is a fundamentally different place now from what it was like before the trauma of the financial crisis,’ Griffin concluded. ‘We are currently witnessing its rehabilitation and a significant shift towards much more stable, cash-generative business models with a lower tolerance of risk.’
News sponsored by:
Today's top headlines
More about this:
Look up the funds
Look up the shares
Look up the fund managers
On the road
by Danielle Levy on Dec 06, 2013 at 07:46