Page 49 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

uK BANKING ANd uNINteNded coNSequeNceS
in capital will mean a decrease in return on equity, making capital itself then more expensive. Perversely then, the combination of an actual stress event with a hypothetical stress event will result in making UK banks far less attractive as investment choices in balanced portfolios.
Portfolio managers in turn, unless they perceive these stocks to become ridiculously cheap, will steer clear of them for some time, excluding them from their portfolios. ese are the portfolios that are managed in the main on behalf of retirement funds, unit trusts, and endowment policies. at is to say, on behalf of the voters in northern England who voted to leave the European Union.
Should these voters be approaching retirement age they may well nd that their lifetimes’ worth of diligent savings have been substantially eroded. Unfortunately, in spite of all of the discussion to the contrary, they will not be given the chance to rethink their choices. Brexit is nal. Sure, trade agreements can be negotiated on an individual basis with friendly neighbours. But the e ect on UK banking will lead to a permanent re-alignment of investor expectations.
“Perversely then, the combination of an actual stress event with a hypothetical stress event will result in making UK banks far less attractive as investment choices in balanced portfolios.”
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