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Henderson's Bennett: financial stocks still hated
by Sarah Miloudi on Mar 27, 2012 at 00:01
Europe’s stricken banks may have been desperate for the €800 billion liquidity injection they were handed by the European Central Bank (ECB), but Henderson’s John Bennett says the stocks are still ‘hated’ by active managers.
Speaking to Wealth Manager, Bennett says that although the ECB’s two long-term refinancing operations (LTRO) have proved popular, they had turned the Continent’s lenders into a ‘massive warrant’, and a geared play on sovereign debt.
‘These banks were starving for a solution, starving for liquidity and starving for their balance sheets to be liquefied,’ he says.
‘The reason [the LTROs were popular] is that it backstopped the situation. Europe was crying out for some sort of backstop to be put in place.
‘Whether it’s a lasting solution, I doubt it. It has made European banks morph into a leveraged play on sovereign credit.’
Before the first LTRO was launched by ECB president Mario Draghi in December, Europe’s banks were priced for catastrophe.
But even despite the offer of ultra-cheap loans – which were taken up by about 500 banks at the end of last year then by a further 800 at the second LTRO in February – Bennett said it will not pay for fund managers to bet heavily against the newly liquefied sector, despite the ECB’s operation only offering a temporary reprieve.
He argues: ‘I am not convinced the liquidity rally is going to come crashing to an end, but when you’re banging something against a wall and then you stop, the pain goes away, and that’s what this is.
‘I think there was a very big chance of a European bank going down before Christmas and that’s why LTRO came along,’ he continues, adding that while he remains underweight the sector, he has reduced this in recent months.
Active managers still sceptical on banks
Although Bennett has reined in his bearish stance on the unloved sector, he says that most active European managers remain sceptical about the prospects for recovery in the region’s financials and includes himself firmly in this camp.