Barclays Bank PLC

BCS-N

Likes it. They bought Lehman, which had investment banking but was really a bond house, so Dodd-Frank caused a lot of capital issues and restrictions. New management is doing a good job by sticking with investment banking and have a great retail franchise in the UK, and they exited businesses around the world that didn't work out. They're going all the right things, though Brexit creates uncertainty. Great credit card business. It will do well, but have to get past Brexit early next year.

He owns other European banks instead. It has 25% of the business in Spain. With interest rates low, it could be poised for a good future once the yield curve normalizes.

He compared it to Deutsche Bank, which he also does not recommend. He thinks they rely on lines of business that will do worse in the future. They were a leading distributor and manufacturer of mortgage-backed securities. “We’re really talking here about Lehman Brothers.” The way the MBS works, conforming MBS doesn’t offer much margin. Subprime and Alt-A were so important because they attract a lot of margin, but those are now out of the mix. He likes the people who work at Barclays, but he would rather put his money in JP Morgan. All the non-American banks are subject to base erosion tax, which raises their costs. JP Morgan and other American banks are not. Brexit also puts the larger American banks into a good position to take share in the European market.

Prefers Deutsche Bank (DB-N) because it is so much cheaper. Barclays has a whole bunch of other issues on its own. It has had some management issues over the years. Thinks you are best looking elsewhere.

Largely speaking, European equities and banks look interesting, but he would probably avoid some of the UK banks. The chart shows this flat lining, a lot of uncertainty surrounding this name in terms of what will happen with BREXIT. If you own, you might want to hold it for a little bit longer, but he wouldn’t add at this point.

Lloyds (LLOY-LN) and/or Barclays (BCS-N)? Some of the European banks will generally follow the US banks up a couple of years later. When the US went into Armageddon, they lowered rates and exported capital, and that caused rates globally to go down. The Europeans with the UK raised rates within a year. So, he thinks this will be the same, but if the US starts to raise rates aggressively, that could speed up the process where higher interest rates in Europe make sense. This one has a little more international exposure. He would consider looking at Banco Santander (SAN-N), which survived relatively well during the crisis.

A lot of European banks are suffering between regulatory problems and the US. They never really repaired themselves post the financial crisis, unlike the US banks. He would tread carefully. On the whole, with 1 or 2 exceptions, he prefers US banks. They have gotten rid of all their regulatory issues a long time ago. (See Top Picks.)

The difficulty with buying things before BREXIT is that you were buying it with a pound that was at its highest level in 18 months. It is up 15% post BREXIT because 75% of its revenues are from outside the UK, and it benefits from the weaker pound. However, the banks are really not a place you want to be if the UK housing market starts to pull back.

Heavily investment banking related and mostly on the fixed income side, which is a tough environment for fixed income. If he were going to buy a bank in the UK, he would be looking to buy Lloyds (LYG-N), a much more retail oriented bank. Retail in the UK will do fine.

(Market Call Minute) Prefers UK REITs to UK Banks at this point in the cycle. The UK is ready to lower rates to stimulate the economy.