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GoSeigen million challenge!

Honest reporting on shorter-term trading activity and ideas
Lemon Slice
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Re: GoSeigen million challenge!


Postby Spet0789 » May 16th, 2018, 7:53 am

GoSeigen wrote:
Spet0789 wrote:I’m afraid that’s a naive view.

Firstly, there are enough mortgages with LTV worse than 50% that, accompanied by the higher defaults we would expect to see in that environment, the banks would be foreclosing and booking losses. That would obviously hurt the numerator of their capital ratios.

Secondly and far more importantly, the risk weighted capital consumption of a mortgage book is a (highly convex) function of LTV. 1bn of 50% LTV mortgages consumes almost no capital. If those become 100% LTV following a fall in market value, even those mortgages that continue to be repaid will consume many many times more capital. It is this factor which will blow the doors off.

The PRA will either require a capital raise, or shut off divis for 5 odd years until capital is rebuilt. Either way, the stock is toast.

For this reason, until we see a normalisation of house prices (ie a fall>30%), I wouldn’t touch UK banks. I am more conservative than that.

Been there, done that. It happened in 2008/9: prices normalised, the repossessions** happened, the shareholders lost all their money, the capital was raised. It's not going to happen again in the foreseeable.

Meanwhile such negativity actually supports a bull thesis: conservative investors having no allocation to banks means lower prices for those willing to take the risk now. [Point 4 in the list here:]

(** foreclosure is not a term used in the UK; similarly you cannot "hand back the keys" here.)

Perfectly accurate correction. Repossession is the correct term (at least in E&W, no idea in Scotland) but the effects are the same for the banks.

You may be right about the banks. I am bearish on U.K. property. My point is simply that IF there is a meaningful correction in U.K. property prices, the U.K. banks will perform poorly as they will need to raise / conserve capital.

If you don’t share that view on property prices then you’re right to consider this an opportunity.

I’m not at all bearish about the banking business by the way. Some US regional banks and Wells Fargo are compelling in my view. I can see merit in owning Barclays. But I wouldn’t touch UK domestic banks as they are still too exposed to one asset class.

Lemon Quarter
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Re: GoSeigen million challenge!


Postby GoSeigen » October 30th, 2018, 1:30 pm

Added a small purchase to the BARC position today, leaving a cash balance of £20-59.

Date Transaction Symbol Unit Cost Quantity Fees Value

30 Oct 2018 BUY BARC 171.02 800 £18.79 £1,386.95

So far, bank shares have produced scant returns, only dividends. Bank share prices remain depressed. However the environment is gradually and subtly changing: gilts are now falling, inflation-linked bonds have soared in the past couple of years, the banks are solidly profitable and returning chunks of cash to shareholders. Lloyds has promised ordinary shareholders roughly 10% next year.

Account value stands at £16,807.67 as of 13:30 today. This is disappointing but not unreasonable given general market uneasiness.


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