So much for the benefits of the self-flagellation and confessing your sins.
The UK banks which have purported to have come clean - raising capital and announcing larger losses - have sustained the worst damage this year. They are also, notes Bruce Packard at Pali, trading at the lowest valuations.
The trouble is that the huge variation between the writedowns at banks in the first quarter raises questions about the accuracy of any particular bank’s numbers. Barclays was the only bank to show improving write-downs in the first quarter relative to 2007, while the rest differed wildly, right up to HBOS, who took £4.7bn in negative fair value adjustments but no impairments.
If there has been kitchen-sinking going on, and we see write-backs in the future, then the banks that have raised capital and written down aggressively stand to benefit disproportionately, notes Packard. Pali is more comfortable with those that have, than those that haven’t.
He adds:
If there is variation around marking to market in the banking sector, we are even more concerned about marking to market in the opaque hedge fund sector. BARC’s lending to ‘non-bank financials’ is bigger than the bank’s UK mortgage book and has grown at a 64% CAGR since 2002.
