Odd Lots John Hempton on What's Ailing Bank Stocks
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Aug 19, 2019 John Hempton, co-founder of Bronte Capital and seasoned bank analyst, shares insights into the perplexing state of bank stocks trading at 30-year lows. He discusses the declining profit margins in banking amid diverse interests rates, challenging conventional views on seeking 'value' investments. Hempton also reflects on strategies for navigating today’s high market valuations and draws parallels with the tech bubble of the early 2000s, emphasizing the importance of understanding business models and recognizing risk in investment decisions.
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Puzzling Bank Valuations
- Bank stocks are trading at 30-year lows despite expensive markets.
- John Hempton finds this puzzling and tempting, especially given his background as a bank analyst.
Lloyd's TSB's Rise and Fall
- In 1998, Lloyd's TSB was the world's most valuable bank, boasting incredibly high-profit margins.
- A decade later, it was effectively nationalized, highlighting the volatility of bank profitability.
Margin Collapse Predates Low Rates
- English bank margins dramatically declined even before the 2008 crisis, demonstrating that low rates aren't the sole cause.
- Competition and aggressive lending practices like Northern Rock's squeezed profitability.