Schroders’ Richard Buxton has defended his banking positions, saying troubled UK lenders could be returning 15% on equity by 2015.
The head of UK equities has 9% of his £2.5bn UK Alpha Plus fund in banks, with Lloyds among the fund’s top 10 positions at 3.5%. The manager also holds RBS, Barclays and Standard Chartered within the portfolio.
Buxton said he is “confident” in the banks’ management and believes they will be able to work through their losses to become profitable businesses, adding share prices “could double from here”.
“Everyone apart from me hates the banks. I do hate investment banks, but for UK banks, I do not think it has all been their fault as consumers played their part in taking out the debt in the first place,” he said.
“We are confident the banks can work their way through the losses. They are letting air out of the balloon slowly, which is a completely normal way to work out of a financial crisis.”
He added if by 2015 banks have worked through their losses, they will be making a 15% return on equity.
Buxton said one major headwind for the bank sector will be the recommendations of the Commission on Banking, which could increase the cost of funding relative to overseas banks.
“However, we think shares should double from here so we continue to add gently,” he said.
The manager also said the banks’ management teams are sound and committed to turning around their fortunes.
“We completely trust the management of RBS. They were implemented post the financial crisis and we actually suggested the chairman and chief executive. They are trying to reduce costs and improve performance.
“There has also been a degree of change at Lloyds [since the crisis] and Barclays was not in as bad a mess in the first place.
“Lloyds is clouded by management issues that we can neither predict nor react to given our long-term view, but a business with amazing market share will always attract talent.
“Lloyds is an inherently profitable UK banking business, even if people say it is uninvestable and it is a laughing stock.”
Schroders’ income team, headed up by Kevin Murphy and Nick Kirrage, have
also stood by their banking positions.
The £1bn Income fund has 29.6% in financials compared to the 20.3% in the index. Lloyds is also in its top 10 holdings.
“Schroders as a house continues to invest in banks as we still believe they are profitable businesses,” Buxton said.
