LONDON -- In 2012, there were two main concerns weighing down bank share prices. First, the possibility of eurozone meltdown. The second biggest concern was that regulators would introduce rules that constrained banks' ability to do business and make profits.
However, an announcement from rulemakers last night suggests that the new requirements may be more bank-friendly than the market had been anticipating. Central bankers from around the world have decided that banks will be able to use a much wider range of assets to meet their capital requirements. The effect is that the banks will have more cash available for loans to businesses and perhaps shareholder dividends, too.
This news has seen shares in the U.K.'s banks reach new highs:
This morning, the sector's biggest bank, HSBC, is up just short of 1% to its highest in more than 18 months.
Shares in Barclays are up 3.5% to their highest price since April 2011.
Asia-focused Standard Chartered is up 1%, trading close to a high for the year.
Lloyds Banking Group is up 1.8%, taking the shares above 50 pence for the first time since the summer of 2011.
My pick of the sector is Royal Bank of Scotland (RBS +1.52%). This is the bank share that I am expecting the most from in 2013. This morning, the shares are up 1.2%. Throughout 2012, the big worry was that regulatory changes might mean RBS would have to raise more capital. Therefore, it is RBS shares that have the most to gain from any apparent easing of regulations.
My confidence in RBS is underpinned by the bank's fundamentals. In August, the bank confirmed that at the end of June 2012, it had a net tangible asset value of 489 pence. The bank is forecast to report earnings per share of 19.3 pence for 2012, rising to 27.6 pence for 2013. The bank is profitable, yet the shares trade at a 45% discount to its assets. I believe that discount is unsustainable and will narrow significantly during 2013.
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