At the moment I have several projects I’m working on all at the same time. Don’t worry, I haven’t decided to turn pro and become a full time beach volleyball player. Instead I have taken on a new free lancer role, writing pieces for sharepad.
So it feels like this blog may go quiet for a couple of months, while I try to juggle priorities.
My first piece for Sharepad I wrote on the UK banks H1 results which came out at the start of August. I spent over a decade following UK banks, and to be honest it was a rather depressing experience as an equity analyst to follow companies that were treading water at best, year after year. Banks haven’t made their cost of equity for almost a decade, which is reflected in their steep price to book discounts (source of the data is sharepad. click on the image to enlarge)
There is a certain irony that pre 2007, banks were reporting 20-35% Returns on Equity, and growing at double digit rates, and there were no new entrants. After the financial crisis, when returns have been much lower due to increased proportion of equity funding, there have been plenty of new entrants, Metro Bank but also banks like Atom Bank, Monzo, Starling, Revolut. N26 the Berlin based, Peter Thiel backed mobile app bank has already tried and now withdrawn from the UK. Thiel is famously not a fan of competition – in an interview with Tim Ferriss, he said that he likes to ask himself every day:
“How do I become less competitive in order that I can become more successful?”
My suggestion would be that Thiel should come and live in Berlin, the city where young people move to retire.
Returning to the recent UK banks results, the main surprise is how sharply the UK mortgage market has bounced back.
A couple of weeks after the bank results, Rightmove released a survey confirming that demand for UK housing was up strongly, helped UK Governments stamp duty tax holiday. Then Persimmon, the house builder reported sales since the start of July up 49% v the same period last year. Not many people would have predicted that sales of new build houses would be a beneficiary of a global virus pandemic.
Is it too early to buy banks? What do their outlook comments imply for consumer spending and commercial property?
You can find my first Sharepad article on UK banks here