Banks set for second crisis, caution UK fund managers

Banks are facing a second crisis, two UK fund managers have cautioned on day two of the annual Morningstar Investment Conference.

Describing the outlook for financial stocks as “ like a car crash in slow motion”, Schroders head of QEP Global Equities Justin Abercrombie said banks were set for a second “slow burn” crisis.

“We don’t think the financial crisis is over, there are lots of financials with shorter capital and poor assets,” he said.

A divergence was emerging between different banking stocks, he argued, with higher quality financials outperforming the lower end.

Looking to a measure of deposits to assets, a UK bank that held a 27% ratio now does not exist as an independent entity, while an Australian bank had 51%, and a Singapore bank had 65%, showing emerging markets Asian financials are much more conservatively funded, he said.

Speaking before him, Threadneedle property investments head Don Jordison (pictured above) meanwhile warned the threat of crisis still overhung banks and was likely to impact on the UK property market.

“The banking component of a crash is something we’ve not confronted and is yet to come.

“This is going to be a black cloud over the commercial property market for the next 10 years while the banks deal with their balance sheets,” he said.

He added that bank finance in the UK still remained limited, and that the institutions had been “up to their neck in debt” for past 10 years.

“Do not underestimate the effect of liquidity on property returns,” he warned. “With no liquidity, transaction volumes quite low.”

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