UK bank shares face increased regulation and playing catch up with technological advances, meaning they are not an attractive investment, according to Invesco Perpetual’s Mark Barnett.
Mr Barnett runs the £9.3bn Invesco Perpetual High Income, and £4.5bn Invesco Perpetual Income fund, as well as the Edinburgh Investment trust.
He said the big issues around high street banks is they really are not growing.
"They’re not growth businesses at all. They are, fundamentally, highly regulated businesses, and have become much more so obviously since the crisis over the last 10 years.
"That’s not going to change, to my mind, any time soon. In fact, if anything, life will continue to remain tough, from a regulatory perspective.
"And they’re phenomenally complicated businesses that are being challenged in a number of different respects with regard to the core banking relationship that people have."
He said banks are trying to adapt to technological advances demanded by customers, but progress is slow.
"We all use smartphones for banking now, or many of us do, whereas we wouldn’t have done five to 10 years ago, but that in itself creates problems, because they have huge legacy systems in these banks which need to be able to speak to the new interfaces.
"So there are a number of challenges that I see around banks where I think that there are better opportunities elsewhere.”
Mr Barnett’s view is particularly noteworthy as he is keener on the outlook for the UK economy and stockmarket than are most of his peers.
Banks tend to be cyclical investments, and so should perform better in an improving economy.
Among the areas where he sees better opportunities are insurance companies and property shares for companies with a focus outside of London.
Hugh Sergeant, who runs the £263m River and Mercantile Long Term Recovery fund, said fears around the potential for a government led by Jeremy Corbyn, or for Brexit to derail financial markets, means UK listed shares are “the cheapest in the world”.
He is much keener on banks as an investment than is Mr Barnett.
He said: “Banking is a key area where [I] think investors can find value, and the fund has positions in HSBC, Lloyds, Standard Chartered and Barclays.
“Banks are lowly valued around the world, have strong balance sheets, generate lots of free capital, are shareholder value focused and, in a number of cases, are able to grow again after many years of restructuring.”
David.Thorpe@ft.com
