Investors in oil and miningstocks finally have something to smile about following Thursdays hell-for-leather charge spearheadedby stricken miner Anglo American, which surged15% in a day. There has been no such respite for investors in the major FTSE 100-listed banks, where sentiment continues to decline.
Banks bomb
The last six months have been dreadful for banking stocks. Inthat time, HSBC Holdings (LSE: HSBA) has fallen 22%, Royal Bank of Scotland Group (LSE: RBS) has plunged 30% and Standard Chartered (LSE: STAN) has crashed 51%. Each bank has itsown well-documented problems, but each hasalso been entangledin the wider web of worry.
All the stimulus in all the world cantliftthe global economy out of its torpor, which is so weak it can be crushedbyawafer-thin US interest rate hike. Analysts were airilytalking of the Federal Reserve hiking rates another four times in 2016. Butnow theyve been silenced by weaker-than-anticipated US service sector data, with somecommentators suggesting the US could even slip back into recession. Thats bad news for globalbanksas rising long-term interest rates help them expandtheir net interest margins, which is astruggle when rates are flat.
Low rates forever
Two years ago I predicted that UK interest rates would go nowhere for a decade, and I see no reason to change my mind. The world is drowning in debt, includingemerging markets that have borrowed trillions of dollars, and simply canttake higher borrowing costs. Worse, the longer rates stay low, the more people borrow, and the harder it will be to increasethem. The prospect of no further rate hikes cheered markets but the commodity bonanza didnt extend to the banks, which remain vulnerable to the loomingeconomic slowdown. At least low interest rates should minimise bad debts fornow.
Trouble spreads
Management at HSBChas publicly admitted the scale of the problem byannouncing plans to cut the number of full-time staff by between 22,000 and 25,000. Itsfreezingpay and hiring at its consumer and investment banking units as itplans to cut as much as $5bn from its cost base by the end of 2017.
RBS remains a reliable font of bad news, recently setting asideanother 500m of PPI provisions, 1.5bn for US residential mortgage-backed securities probes and 4.2bn of pension fund top-ups. Chief executive Ross McEwans announcement that it would make a loss in 2015surprised nobody. In fact, nothing about RBS surprises anybody these days.
You mightsay the same about Standard Chartered, where profits will continue to labour under the double burdenof its restructuring programme and continuing Asia weakness. Citi has just warned that its share price correlates with cheap oil, and struggling emerging markets markets proved it right on Thursday, when the stock spiked6% in the commodity rebound. It still has a long journey ahead of it.
HSBC iseasily my pick of the three, partly becauseits the only one that offers a dividend, currently a mind-blowing 6.86%. One day youll be glad you bought at todays valuation of 9.71 times earnings, butonly invest if you can hang onuntil that distantdayarrives.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.