Investment Desk Bulletin

07 March 2017

Global Banks: A medium-term investment opportunity

IDB 07 03 17

By Sanjay Joshi & Craig Shute

For London & Capital, fixed income Financials remain the largest single investment conviction the company has undertaken in the last 15 years. In this week’s IDB we will look at the reasons for this, focusing on the benefits and how to identify the opportunities within fixed income banking and insurance markets.

In recent years there have been significant developments that have changed the profile of Financials. There is a very positive outlook for Financials, with global bank balance sheet deleveraging translating to lower risk weighted assets, an increase in the capital base (higher CET1 ratio), flexible funding and greater liquidity.

Banks are stronger, highly regulated and remain key players in the global economic system. Loans have experienced negative growth for the last 5 years, funding is more stable due to lower dependence on deposits and there is significant capital cushion across the board. These reasons, coupled with the attractive absolute and relative valuations, provide an opportunity for capital growth and reinforce the strategic medium-term holding for London & Capital.

London & Capital have been sponsors of insurance fixed income markets since 2010, a strategy that works well in conjunction with the global bank theme. Solvency II, the overarching regulatory framework for the insurance sector, allows for a more robust and resilient sector. With strong balance sheets, a high quality capital structure and a focus on the institutional environment, the insurance market remains a focus in our approach to Financials.