2014 will go down as a disappointing year for the UK banking sector, as their post-crisis share price recovery petered out.
Barclays (LSE: BARC) fell 10% over the year, while HSBC Holdings (LSE: HSBA) and Lloyds Banking Group (LSE: LLOY) fell 7% and 4% respectively.
Only Royal Bank of Scotland Group (LSE: RBS) posted a positive return, bucking the downward trend to rise 14%. If you thought that was bad,2015 could be really horrible.
Annus Animus
Some investors deliberately targeted last years underperforming sector, in the hope that the cycle will swing in their favour. This makes more sense than investing in last years winners, but the banking sector could prove a two-timeloser.
The regulators were accused of being slow to punish the bankers in the wake of the financial crisis, but they have subsequently taken incremental revenge.
The Competition & Markets Authority (CMA) looks increasingly likely to demand an end to free current account banking this year, which may finally shock customers into being more proactive about switching account.
The big four are so dominant with 77% of personal current accounts, 85% of business current accounts and 90% of business loans that the CMA will be ready to take dramatic steps to shake things up.
War On All Fronts
It wont help that the UK faces an anything-can-happen election in May, in which the big bad banks will feature heavily as stage villains. Labour leader Ed Miliband has already said he wants to limit the market share of the big banks, which could increasethe pressureon the CMA.
New rules designed to ring-fence riskier investment banking operations from UK retail arms, inthe wake of Vickers enquiry, could cost the big banks billions, despite a pledge by the Prudential Regulation Authority that they will not be unduly burdensome. Treasury committee chairman Andrew Tyrie is also on the bankers case, pushing hard to drive througha culture change.
The biggest surprise is that the public havent turned aggressively against the big banks, despite consumer campaigns such as Move Your Money. Even the rise of the challenger banks such as Metro, M&S, Tesco TSB and Virgin Money has yet to get people really moving. The death of free banking could finallychange that.
The Incredible Shrinking Four
All of which threatens(yet another) annus horribilis for investors, especially when you consider how many fresh banking scandals the year is likely to throw up.
There may still be opportunities out there, but this could be the year that investors realise the big banks may not stay big forever.
There are far safer ways to make big money in 2015, though, I believe.
Byadopting the right strategy this year, you could take a giant step towards joining the growing number of UK millionaires who earned their wealth on the stock market.
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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.
