Fidelity Worldwide Investment fund manager Michael Clark is looking at UK banks again, feeling certain banks may be able to defy a sector-wide bearish view.
Despite Moody’s downgrading the UK banking sector from “stable” to “negative” Clark, who manages the £941m Fidelity Moneybuilder Dividend fund, says the sector contains some high quality names that will be able to deliver increased dividends,
In particular Clark has HSBC and Barclays on his radar.
With HSBC Clark points out the bank has the best banking book in the UK and, despite a falling share price, has exposure to a fast growing Asian market that could encourage more growth in the company.
He says: “The bank is very conservatively run and is making good progress both externally (better compliance, regulation and capital) and internally (cost control and growth initiatives).
“Overall, I believe it is a steady compounder, with a good dividend yield of 5 per cent and has a proven and successful business model with long-term viability.”
And despite US regulatory pressure facing Barclays, Clark likes this bank too.
“Barclays is another relatively unloved stock,” he explains.
“The bank is restructuring, running off non-core assets and focusing on higher return businesses such as its collection of quality franchises in UK banking, Africa and Barclaycard.”
However Clark still sees long running issues in Lloyds, Royal Bank of Scotland and Standard Chartered.
Clark is sceptical of Lloyds and Standard Chartered as the former has confirmed it will be unable to pay a dividend for the time being while the latter has increased its risk profile – through practices such as unsecured lending – which the fund manager sees as posing a potential risk to earnings.
Clark also takes exceptional issue with RBS despite strong first quarter results. He says: ”I don’t believe these results are a reliable indicator of future performance.
“RBS is woefully under-invested in systems which will remain a drag on operational capabilities for years to come. In fact, it could be 2016 before the company starts making decent profits and is allowed to pay a dividend to shareholders.”