Weekly international investment round up to January 19, 2010
• Banking backlash intensifies.
• Untouchable sector set for radical change.
‘We want our money back’ snapped a defiant US President Barack Obama at the banks just a few days ago, as he delivered his plans to recover every last dime spent in rescuing the financial sector from meltdown.
He laid out his plan to recover at least $90 billion dollars over the next 10 years by imposing a levy on the balance sheets of financial firms with assets over $50 billion dollars which is thought to affect around fifty of America’s top institutions in order to recoup some of the tax payers $700 billion dollars injected into the sector through the ‘Troubled Asset Relief Programme’ (TARP) at the very height of the crisis.
With US unemployment figures at a 26 year high and elections due which could put Obama’s Democrats majorities at risk in both the House of Representatives and Senate his determination to recover money from those widely seen as causing misery while still awarding themselves obscene bonuses is likely to go down pretty well and help improve his faltering rating figures.
If you are an investor in any general US focused investment fund or one which invests in the world’s leading companies the chances are your fund manager has at least some of your money tied-up in these institutions in fact, the make-up of many middle-of-the-road, balanced investment funds in all countries usually contain a fair percentage of financials as these have long been seen as the bedrocks of an economy along with the theory that banks are some kind of huge money making machines which can not fail. Although recent events would certainly confirm that the vast majority do indeed carry a get-out-out-of jail free card issued at the expense of the tax payer maybe the days of lax regulation, self-congratulatory bonuses and lack of meaningful competition are indeed numbered.
Last September, I suggested that ‘banker bashing’ was the logical first step against the financial sector before we enter the ‘reform and recovery - stage 2’ era as it would let out some steam and is an issue which unites rather than divides during these tough times.
President Obama would now appear to be moving us on even further to the ‘pay back’ period whose lead Europe at least is likely to follow. Unwisely, the banks may decide to pass on additional fees to their disgruntled clients many of which are already unhappy with their service levels and fees. So, after years of excess the scene is becoming perfectly set for radical change within the banking sector. Squeezed by tougher regulation on non-core, dubious investment activities banks may have to fracture themselves while shareholders could begin to see their dividends decrease.
But just like the previous ‘untouchables’ such as the Car and Airline sectors the biggest threat to the banking industry’s comfortable status quo will come from increased competition. While President Obama was delivering his speech Richard Branson was blotting the ink on his deal to buy the tiny British Bank, Church House Trust, while supermarket giant Tesco’s is soon to offer current accounts and home loans. Whether through evolution or revolution the change has already started.
Mark Lamb is Head of the Life Dept. at Citadel Insurance plc which is authorized to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email; [email protected] Tel; 25579000. Website; www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision
