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By Nick Reeve | Published Sep 20, 2012

Omam’s Murphy stands firm with bank holdings

Old Mutual Asset Managers UK’s Simon Murphy is keeping faith in his holdings in Barclays and Standard Chartered in spite of major blows to the companies in recent months.

The manager bought small positions in both banks for his £77.1m UK Select Equity fund in March, alongside an existing holding in HSBC.

From the end of March to September 17 Barclays’ share price fell 2.1 per cent, having recovered strongly from its lows in July at the height of the Libor scandal.

In the same period Standard Chartered’s share price decline 1.6 per cent, including a 21.6 per cent collapse over two trading days after it was accused by New York State’s Department of Financial Services of hiding $250bn (£154bn) of transactions with the Iranian government.

However, Mr Murphy stood by the holdings, saying they were “potentially interesting” as medium term opportunities, while admitting that the banking sector had a “rocky road” ahead.

“Standard Chartered has an unrivalled Asian franchise,” he said. “My feeling is that it has been treated unfairly by a regulatory agency trying to make a name for itself, and forced it to settle the issue at a high price. Do I think it’s a life-threatening situation? No.”

On Barclays, Mr Murphy said the bank made the “right decision” to appoint Antony Jenkins from the retail side of the business as the bank’s chief executive, replacing Bob Diamond.

“When we started investing in Barclays the valuation was already incredibly low, so it was already providing something of a cushion,” the manager said.

“We already knew about ringfencing proposals, Basel III rules [on bank capitalisation], and the US authorities investigating investment banks. Libor was an unknown but the valuation was low enough to take into account regulatory uncertainties.”

Mr Murphy emphasised that his bank holdings were still heavily underweight compared with the fund’s benchmark, the FTSE All Share sector, as the public attitude and the media and regulatory environments were still “incredibly hostile” towards the sector.

Elsewhere in his financial services holdings, Mr Murphy has also upped holdings in life insurance firms such as Legal & General, Standard Life and Prudential, which he said all have stronger balance sheets than during previous crises.

The Old Mutual UK Select Equity fund ranked in the second quartile of the IMA UK All Companies sector over five years to September 17, according to FE Analytics, with a gain of 13 per cent compared with the sector’s 11.6 per cent average return. The fund also posted top-quartile performance over one and three years.

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