The private bank's investment and wealth managers recently discussed asset allocation ideas and trends such as how financials sometimes more resemble technology companies in some ways.
Banks are more driven by technology developments than investors give them credit for when valuing them, but the change in perceptions is not yet taking place, a senior figure at UK private bank Coutts has said.
With lenders pouring billions into areas such as artificial intelligence, machine learning, mobile apps and distributed ledger tech such as blockchain, the valuation of banks as a sector may increasingly resemble that of other tech names. And with the likes of Alibaba in Asia and Amazon said to be eyeing the banking sector, the divisions are becoming increasingly blurred.
“Banks are much [more] driven by tech than the market is so far acknowledging,” Mohammad Syed, managing director, global markets, Coutts, told a briefing for journalists recently.
To some degree, financial analysts who have been used to valuing banks have not thought of them in the same way as tech stocks, he said.
Banks, of course, face specific regulatory requirements, such as minimum capital buffers and, in the case of certain jurisdictions, specific conditions for receiving bailouts in the event of a crisis, such as the ring-fencing rules used in the UK. Coutts’ Mohammad said that the regulatory climate for banks in the US appears to be less onerous than in Europe, leading to a situation where the largest banks in the West tend now to be American, rather than European, he said.
Elsewhere, Coutts' senior managers spoke of how the firm is positioning itself for how the US stock market, in particular, will look in the late stages of a bull market. The US shows no sign yet of recession, Alan Higgins, chief investment officer, said. However, an inverted US bond market curve, which has typically flagged the likelihood of a slowdown, carries some form of warning. “The market knows something’s up.”
The final year of a bull market can show “very strong returns”, Higgins said.
“We are generally pro-risk and a natural overweight of equities,” he said.
Highlighting areas where Coutts has gone against the investment grain, he pointed to how the bank has taken a long position on Russian equities, seeing these as cheap even by Russian, as well as international, standards.
Among financials, deleveraging means that a number of banks and other institutions appeal, he said, pointing to the case of Morgan Stanley trading at 13 times earnings with a three per cent yield. Turning to the case, for example of Lloyds Banking Group (the comments were made before it issued its H1 results), Higgins noted how the bank’s bonds carried a relatively low price, still affected by memories of the 2008-09 financial crisis, suggesting Lloyds’ securities prices reflect old news rather than fresh realities.