Libor woes should not put investors off: Murphy
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The co-manager on Schroders’ Recovery Fund said although the Libor rate-rigging scandal, its ramifications and fallout has generated media coverage, this would not necessarily affect the investment case for UK banks.
He said: “The latest revelations are further evidence of a pretty rotten culture that has existed within British banks and none of what follows is intended to condone or apologise for that. However, one of the fundamental points of value investing is to try and take emotion out of the investment process.
“The day Barclays’ fine was announced, the bank’s market capitalisation fell some £3.5bn – more than 10 times as much as the fine. This was an emotional reaction by the market, which was essentially giving up on banks as almost uninvestable.
“And yet, over the last three or four years, the banks have been making some steady progress. They have repaired capital, improved profitability, jumped through all manner of regulatory hoops and endured a great deal of political scrutiny – not least as a result of the report from the Independent Commission on Banking.”
He added that political scrutiny, on both sides of the Atlantic, appears to have been the last straw for the market, which feels it cannot invest in banks because of the associated headline risk. But while headline risk can be deeply uncomfortable – for investors as much as for those making the headlines – it is unlikely to affect whether or not Barclays is a good investment.
Mr Murphy added: “All sectors and all businesses carry headline risk, all the time. In June, for example, News Corporation and BSkyB were attracting negative headlines while two years back BP was in the news for all the wrong reasons and, a decade ago, the market was terrified about the threat of litigation hanging over the tobacco industry.
“These things are part and parcel of being in business and, as often as not, can present those taking a longer-term view with opportunities to invest rather than be wiped out.”