RBS and Lloyds could be nationalised, MAM Funds' Gray says

RBS and Lloyds could be nationalised, MAM Funds’ manager Martin Gray said, as the banking crisis has only been through the first stages of reform.

‘We’ve had the financial crisis, banking crisis part one and I have got a feeling there are a few more chapters and volumes to come… We may have part two, maybe a trilogy,’ Gray argued.

He equated the situation of Europe’s banks to those of Japan in the years following the stock market slump in the 90s. As has happened in Europe, Japan’s banks did little lending in the years following the equity market’s collapse and it took ‘the best part of a decade’ before banks were forced into reform.

‘By comparison with Japan, when their asset bubble exploded it took a little time for it to unwind and actually be seen as serious,’ he argued.

‘Moving through ‘95, ‘96, ’97 we were seeing that very little was actually changing in Japan. Banks were restricted in lending because they had so much bad debt on their balance sheets and there was nothing going forward, the economy was just creaking and moving in to debt deflation.’

‘It took until 1998 before things were starting to really move and actually into the 2000s before they properly bailed out their banking system, and forced the banks to take bad loans off their balance sheets, forced to recapitalise, banks were taken over and restructured, and all those sorts of things.’

Given the state of the situation in Europe, RBS and Lloyds could become nationalised. ‘Barclays managed to escape [taxpayer bailouts]. Whether that was the right thing or the wrong thing I don’t know. But RBS and Lloyds… Who knows, one of these days they may end up in taxpayer’s hands,’ he said.

Gray, who is not currently rated by Citywire, runs three funds; the CF Miton Special Situations Portfolio  and CF Miton Strategic funds, alongside theCF Miton Select Assets fund . The special situations fund returned 1.19% in the year to November 2011, compared to 2.44% in the LCI UK Balanced & International Equity and -2.86 in the Lipper Global Mixed Asset Other Aggressive.

He also said he could see the UK being drawn into recession next year but expected it to be ‘pretty shallow’, and also said he thought the OBR’s recent 0.7% growth prediction would likely be revised down at some point.

‘Any sort of upside there might have been next year will probably be blown away by Europe being in recession next year,’ he said.

On Europe, Gray said: ‘The original concept of the European Union was about trade and they could well I’m afraid if that’s what they want to do the German taxpayer has to accept that they’re part of that dream and they have pay up for the rest of Europe. There’s no point in saying “Why can’t the rest of Europe like us because they ain’t and they won’t ever be”. The question is does Germany want to take on that responsibility? I don’t think they necessarily do.’