Woodford, Hanbury, Smith and Findlay face off on banking sector


A panel of fund managers have faced off on whether the banking sector is too complex to make a good investment or whether it represents good value.

Odey Asset Management’s James Hanbury revealed he is backing the banking sector and is invested in Goldman Sachs, Russia’s Sberbank and Greece-based Alpha Bank, speaking at an event hosted by Jupiter Asset Management.

Findlay Park Partners chief executive James Findlay also spoke in favour of the sector.

But Fundsmith chief executive Terry Smith, who is not invested in the sector, argued derivatives have made banks too complex, starting with interest rate swaps in the 1980s and moving into currency and credit derivatives up to the global financial crisis.

“Once you had all those derivatives I could have all those annual reports in front of me and analyse a bank’s balance sheet. One minute after it was struck, with the click of a mouse or a telephone call, someone in the dealing room may have altered every one of those exposures,” he said.

Smith said if he was forced to own a bank it would look like “what a bank used to be”, adding: “It takes deposits from its customers, it lends money to its customers and when it takes the money it retains the loan on its books.”

Neil Woodford, investment manager at Woodford Investment Management, said he would have to convince himself he knew how banks worked before he invested in the sector.

In 2014, Woodford dumped all his HSBC stock just a couple of months after buying into it, due to concerns about large fines from the regulators.

“They have become incredibly complex organisations with lots of unpredictable vulnerabilities, relating in part to misconduct in the past, in part relating to the capricious regulatory path that we’ve seen and are likely to continue to see. They are struggling as well in this extraordinary monetary environment that we’re in,” he says.

Woodford said he was instead interested in disruptors, and named challenger bank Atom Bank as an investment he was pleased with.

“We’ve dabbled in peer-to-peer. I find those much easier to understand, I’m a simple guy and I can understand how they make money, how they manage risk and how they’ll succeed or fail in future,” he adds.

However, Odey Asset Management’s James Hanbury reasoned that banks became a good investment coming out of the downturn because they were disliked and cheap.

“They’ve hardly made a bad loan in the last seven years. If they have a nice rally we might sell them,” he said.