A great bank shares buying opportunity

Dutch bank ABN Amro has shown outstanding promise since as long ago as 1992. Two years ago, my research pointed to the probable share price developments in the Italian banking market.

Provided with the necessary tools, can the Maltese investor unlock the Pandora box of riches, which is the world of profit- taking? The principle with any share is to buy in a downturn and sell at the top of the market. If one enters the marketplace, and buys bank shares as if one were tossing dice in a brightly lit casino room one is sure to face disaster.

Always ask yourself if, in this selling opportunity, there is a chance of profit-taking.

The founder of the legendary Rothschild banking dynasty used to say that the time to enter the stock exchange was "when blood is on the streets". One might object and say that this statement is simplistic in the light of modern economy theory. It is quite possible for stock exchanges to be in a state of turmoil while the fundamentals of the economy are extremely healthy.

The trouble with stock markets at present is monetary. It is not caused by economic fundamentals. This can be seen immediately by noting that the present turmoil has hit banks while companies involved in the real side of the economy, like Nokia and BHP Billiton, have been left largely unscathed.

The opportunity

The big money-making opportunity lies in the exploration of the volatility that is manifesting itself in the movements of the share prices of banks like Barclays and HSBC. Barclays has been showing some Rothschild banking derring-do, or 'hubris' if you like.

It has bid Lm80 billion for ABN Amro and its chairman, Marcus Agius, a city grandee on his own merits, might yet do something worthy of the great Rothschild family into which he has been married for 36 years. He has never stated as much, but I can feel the pea under the blanket.

During the past two months banks have given their shareholders excitement while others have generated an 'anxiety' state. It was the sub-prime crisis in the United States, which initially caused this banking turmoil. Sub-prime mortgage loans were made to people living in caravans, who could hardly ever have been expected to repay them.

This large-scale, unorthodox banking activity contained a degree of outright criminal conspiracy. It has unbalanced, if ever so slightly, the world financial system. What is to be emphasised is that, in spite of some rogue bankers, who prodigiously will be apprehended, the unbalance in world finance is not going to cause anything like the 50% collapse in the American banking system that the US experienced in 1929.

Since then the wisdom of economic science has flourished. In the present crisis Bear Stearns lost 37%, Goldman Sachs 27%, Morgan Stanley 26%, Barclays 21%, and the mighty HSBC came out best with a relatively small loan of 8%.


A statement by a leading Barclays banker contributed to the conflagration of its shares. There has been the intervention of Eric Knight, the shareholder activist demanding a review of HSBC, but this seems paradoxically to have contributed to its ability to withstand the market meltdown. An analyst declared on Friday on Bloomberg that it was impossible to declare a bank solvent on the basis of its balance sheet.

Robert Diamond of Barclays Capital was downright paranoic in his attitude to the difficulties of his bank. The Economist did not use the word "paranoic", but something worse. It said he was like one who shouted "fire" in a crowded theatre.

That is, he acted like a downright madman. This mistake has caused an unmerited fall in Barclays shares. These could well bounce back when the Americans will take their long-awaited chance to buy the bank.

Mr Knight's statement that HSBC was up to 50% undervalued could be of benefit to its share price. Analysts seem to agree that HSBC is in a position to hand $25 billion to investors. HSBC can afford a special dividend.

The money-making opportunity is greater in the case of Barclays than HSBC. The reason is that management mistakes at Barclays caused by an inflated and erroneous 'ego' have been all too apparent and call for a correction.

The recent strong turn in HSBC's world strategic banking policy might deliver an upside of 50%, but in Barclays' case considerable gains can come much more quickly; yet its financial solvency is much less clear than that of HSBC.

This article is not intended as investment as investment advice, but aims to help produce an investment culture. John Azzopardi Vella has promoted the Malta Development Fund and advised S&P. He is currently re-search economist of DBR Investments Ltd, which is licensed by the MFSA. E-mail:

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