Sunday, April 28, 2013

The difficulty in buying shares in any bank today

In a column discussing the possibility of the UK government selling its shares in RBS and Lloyds, the Guardian summarized why investors should not buy shares in any bank today.
But there are plenty of reasons to be cautious about buying bank shares – even when, compared with the value of banks' assets, they appear to be cheap. 
The market values banks at around half the value of their assets – and probably quite correctly, given that the regulators themselves are concerned about unexploded bombs on their balance sheets.
The Guardian focuses on the simple fact that investors do not know what exposures a bank has on or off its balance sheet.  

Without knowing what these exposures are, investing in a bank is nothing more than gambling on the contents of a 'black box'.

A not very attractive gamble as the regulators, who are in a position to evaluate the contents of the black box bank, "are concerned about unexploded bombs".

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