The wait’s almost over for Britain’s banks. Following years of claims and at the cost of tens of billions of pounds in financial penalties (some £35bn at the latest count), the claims deadline related to the mis-selling of payment protection insurance (PPI) is almost within touching distance.
Any bubbly that the banks may have been planning on breaking open on August 29 is likely to be put on ice though. Why? The possibility of more crushing expenses related to previous misconduct, that’s why.
I’m speaking more specifically about the European Commission’s decision on Monday to launch a £1bn lawsuit alleging that Barclays (LON:BARC) and RBS (LON:RBS) — along with JP Morgan, UBS, and Citibank — had engaged in rigging foreign exchange markets. The banking sector’s major players have already paid out a fortune in fines to global regulators over the issue of currency market manipulation, so today’s news gives investors in UK banks plenty more reason for worry.
Fresh Brexit bothers Of course, the possibility of more expensive misconduct charges isn’t the only thing for RBS and Barclays to fear in the coming months. Indeed, the major reason to be fearful about these businesses is Brexit and the possibility of a no-deal, cliff-edge withdrawal from the European Union.
We’ve talked to death about the likely implications of a disorderly Brexit for the banks in recent weeks and months, so I won’t repeat them here. It’s worth bringing to your attention, though, the rapid shortening of odds on an economically-calamitous exit following Boris Johnson’s elevation to Prime Minister.
Indeed, sterling dived to fresh multi-year lows under $1.23 on Monday following news that the government’s intensifying no-deal preparations for a likely EU exit on October 31. Many commentators now believe leaving the European block without a deal is the prime goal of a Johnson administration, one which is also refusing to meet its Brussels counterparts for fresh talks unless the hated Northern Ireland backstop is removed.
Power up your dividend flows It doesn’t matter, at least in my opinion, that both RBS and Barclays trade on cheap valuations with price-to-earnings (P/E) ratios of below 10 times. Such ratings reflect the huge risks created by an increasingly-murky trading outlook and the possibility of further whopping regulatory fines.
If you’re looking for great Footsie shares for right now, then National Grid (LSE: LON:NG) is a much better bet, I believe.
We all know how the essential nature of their services makes utilities providers popular safe havens in turbulent times, so with Brexit concerns rising, worries over trade wars increasing, and political strife in the Middle East accelerating, it’s possible that investor interest in National Grid could grow in the weeks and months ahead.
It’s worth noting that fears over a potential re-nationalisation of the UK power grid under a Labour government have swirled around National Grid of late. The chances of such a scenario materialising are waning, however, as the poll ratings of Jeremy Corbyn’s party slide through the floor. Besides, if recent reports are to be believed, the Footsie firm is pulling out the stops to protect shareholders in the event of Labour coming to power.
Right now, National Grid sports a sub-15 times P/E ratio and a giant 5.7% corresponding dividend yield. I’d be much happier to invest my hard-earned cash here than in Britain’s beleaguered banks.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019