The next Bank of England governor could be good for UK bank investors
The appointment of Mark Carney to succeed Sir Mervin King when he steps down as Governor of the Bank of England in June 2013 came as a complete surprise to the markets, the press and even the bookies – not least because the current Canadian Central Bank head had, some weeks earlier, ruled himself out of contention.
In common with anyone else – he is after all just one of nine votes on the Bank of England’s monetary policy committee – Carney seems unlikely to be able to change the fortunes of an economy or even the policy of a central bank singlehandedly. However, his appointment has been broadly welcomed – particularly as Canada has emerged from the global financial crisis in relatively robust health.
Although, here on The Value Perspective, we would suggest the jury should probably still be out on how much that is down to Carney and how much to the enormous natural resources boom the country has enjoyed, we would – on the back of his record as bank of Canada Governor over the last four years – paint his appointment as potentially good news for UK banks and their investors.
While in no way wishing to imply UK banks will immediately follow the example of their Canadian counterparts the moment Carney turns up at Threadneedle Street on 1 July, we would note Canadian banks have become highly profitable during his term of office. Furthermore, they seemingly enjoy lower levels of competition than in the UK and are currently able to pay dividends even though their capital bases are actually worse than those of their UK counterparts.
Arguably most importantly, Carney is also Chairman of the G20’s financial stability board, in which capacity he has overseen the setting of the Basel III international banking regulations. As such it would seem inconsistent, to say the least, were he then to insist any rules governing UK banks be more demanding than those he felt appropriate for the rest of the world.
In the end, banks are what they are and the UK political system is what it is. It is certainly interesting Chancellor George Osborne chose to look beyond the candidates from within the UK establishment and opt for a fresh perspective and, as an indication of what that perspective may be; we will end with a quote from the man himself.
Speaking in Montreal at the start of November, Carney said: “more intensive and effective supervision will reinforce internal governance and risk management. But the point is not to pile up capital and other regulatory capital requirements so high that banks are never heard from again as either a source of risk or credit to the real economy.”
Fund Manager, Equity Value
I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials. In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.
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