Standard Chartered and the importance of a strong bank balance sheet

Over the last few years, Standard Chartered has not turned out to be a good investment, with shareholders being hit by both a rights issue and a suspended dividend.

The root cause was the bank’s balance sheet, which was not able to withstand significant loan impairments caused by a delayed aftershock of the financial crisis.

Having sold my Standard Chartered shares just a few days ago, I think now is a good time to look back at what happened. However, rather than simply crying over spilt milk, I want to focus on why the milk was spilt in the first place and how I (and perhaps you) can try to avoid this sort of unpleasant situation in future.

But before I get into the details, here’s a quick snapshot of the results of this investment.

  • Purchase price and date: 1,215p on 07/07/2014
  • Sale price and date: 744p on 06/03/2017
  • Holding period: 2 years 8 months
  • Capital gain: -40%
  • Dividend income: 7%
  • Annualised gain: -15 %

Overview: “Only when the tide goes out do you discover who’s been swimming naked” – Warren Buffett

When Standard Chartered joined the UK Value Investor model portfolio it was one of the only UK-listed banks to have survived the initial phase of the global financial crisis completely unharmed.

That was mostly down to the fact that the majority of its business was and is conducted in Asia, Africa and the Middle East, rather than in the West where most of the causes and effects of the crisis were centred.

In fact, Standard Chartered didn’t just survive the financial crisis; it sailed through it almost without blinking. It quickly settled back into its previous pattern of almost monotonously regular double-digit growth, but that happy picture was not to last.

Things started to go wrong in 2013 when growth in the emerging markets where Standard Chartered operates began to slow down, partly as a long-delayed reaction to the financial crisis. This reduced corporate finance activity which hurt the company’s wholesale banking business, and there were more headwinds to come.

Increasing regulatory costs, persistently low interest rates and collapsing commodity prices all combined to create a “perfect storm” that stopped Standard Chartered’s growth in its tracks and sent the company into reverse.

Eventually, the dividend was cut and then suspended and a £3 billion rights issue was needed in order to strengthen the balance sheet.

Here’s what the last couple of years looked like from the point of view of Standard Chartered’s share price, including the points at which I bought and sold the shares:

Standard Chartered chart
When banks go wrong they tend to go very, very wrong

Buying: A “safe haven” bank facing normal, cyclical headwinds

When I bought Standard Chartered in 2014 it had an almost perfect track record. Its 10-year growth rate was very high at more than 10% and its return on equity had averaged 13% over the same period.

Its balance sheet also appeared to be strong, not only relative to regulatory minimums but also relative to most other UK-listed banks.

The chart below shows how attractive that track record looked:

Standard Chartered results
Financial track records don’t get much better than this

That track record looked no less impressive when compared to the FTSE 100’s record over the same period. On top of that, the usual valuation premium associated with high-quality, high-growth companies was nowhere to be seen.

Thanks to the emerging market slowdown Standard Chartered’s yield was above average, while its PE10 and PD10 ratios were also better than average, as highlighted in the table below:

Standard Chartered results table
Standard Chartered beat the FTSE 100 across every one of my key metrics

By every measure, Standard Chartered appeared to be an above-average company trading at a below-average price, which is exactly what I’m always looking for.

Of course, this argument would only make sense if it was reasonable to assume that the company could maintain and grow its economic value – in other words, its net asset value, earnings and dividends – over the medium to long term.

There was a realistic chance that it wouldn’t. After all, investors were worried about the impact the emerging market slowdown would have on the bank’s earnings and, perhaps more importantly, on the value of its assets (i.e. the loans it had made to many thousands of businesses and individuals).

Having spent some time researching the potential impact, there appeared to be no strong consensus among analysts and commentators. Yes, there were risks and the company’s performance was likely to be weak for a period of perhaps several years, but no, it was not obvious that a dividend cut, dividend suspension or rights issue was just around the corner.

It was on that basis that I decided to invest the usual three to four percent of my personal portfolio and the UKVI model portfolio into this most impressive-looking of banks.

Holding: Events prove that the balance sheet was not as strong as I’d hoped

The investment got underway more or less as expected. The economic situation deteriorated, bad loans started to mount up and the share price fell. This initial period of negative results is entirely typical of most value investments so I was not particularly worried, even when the share price fell by around 25%.

From a low point at the start of 2015, the share price recovered as management focused on balance sheet strength, cutting costs and reducing risk. The dividend was maintained at the 2014 annual results (published in March 2015) and this appeared to be a fairly standard “hunker-down” phase, with a pinprick of light visible at the end of the tunnel. Here’s a comment from CEO Peter Sands:

“Trading conditions remain challenging and the actions we are taking to de-risk, cut costs and build capital are having an impact on near term performance.  However, underlying business volumes generally remain strong.  We remain confident in the strength of our franchise, the opportunities in our markets and in our ability to build returns to an attractive level in the medium term.”

However, the CEO’s confidence was ill-founded and just a few short months after that comment was made a new CEO appeared in the shape of Bill Winters, along with a new management team. Shortly after that, the 2015 interim results announced a major decline in profits and a 50% dividend cut, and soon after that, the company announced a £3 billion rights issue and then suspended the dividend.

At this point, I began to reassess my assumptions about what constitutes a strong bank balance sheet.

Measuring strength in a bank’s balance sheet

Like other companies, the balance sheet of a bank if made up of assets and claims on those assets, otherwise known as liabilities. The major assets of a bank are the loans it provides while the liabilities are money it borrows in order to fund those loans.

The liabilities can be split into two main types: debt and equity, where equity is often referred to as capital in the banking world. Debt comes mostly in the form of deposit accounts, while equity or capital is money owed to shareholders, including retained profits.

The critical thing to understand when it comes to measuring bank balance sheet strength is that capital acts as a buffer to protect depositors when many of the bank’s loans are not repaid in full.

As a simplified example, imagine a bank that has £95m in deposits and £5m of shareholder capital.

That £100m of liabilities is then loaned out as a series of loans (which are assets to the bank) totalling £100m. However, many of these borrowers do not repay their loans in full, so the value of those loans (the bank’s assets) falls by £10m to £90m. Since assets and liabilities must balance, the bank’s liabilities must also be reduced to £90m.

It is the role of capital to take the first and hopefully full hit of any declines in asset values, and in this case, the first £5m of the £10m asset write-down can be borne by shareholder capital, but after that first £5m there is no capital left.

Unfortunately, the bank’s depositors must now take the remaining £5m hit, leaving depositors out of pocket and the bank insolvent. At this point, a rights issue, nationalisation or the failure of the bank are the only routes available.

It is therefore imperative that banks have enough capital to absorb loan losses without serious risk of failure because bank failures can lead to systemic runs on banks, which of course most societies and their governments want to avoid.

This is why banking regulation makes a big deal out of capital ratios, which measure the ratio between the amount of risk taken on by a bank and the ability of its capital to absorb losses on those risks.

For a deeper and better explanation of bank balance sheets, have a look at Bank Capital and Liquidity (PDF) from the Bank of England.

The most prominent capital ratio is the Common Equity Tier 1 (CET1) ratio, an evolution of the previous Core Equity Tier 1 ratio. This is the ratio between a bank’s risk-weighted assets and its “highest quality” capital and it’s the ratio I originally used to conclude that Standard Chartered was well-capitalised.

The current regulation requires banks to have a CET1 ratio of between 4.5% and 9.5%, depending on various factors, so my initial assumption was that a ratio of 10% could be described as adequate.

This seemed reasonable as the major UK banks all had CET1 ratios of less than 10% during the pre-crisis banking boom (where – with hindsight – they obviously didn’t have enough capital to absorb losses on their loans) whereas by 2013 (after years of rights issues and much strenuous effort to strengthen their balance sheets) they all had CET1 ratios of more than 10%.

In fact, Standard Chartered was already targeting a CET1 ratio of 11% to 12% in 2014. This turned out not to be enough, so the target was moved upwards to 12% to 13% during 2015, a target which was subsequently achieved by suspending the dividend and raising £3 billion of additional capital through a rights issue.

Given these negative events, I decided about a year ago to up my minimum CET1 ratio requirement to 12%, or more specifically that it should have averaged more than 12% over the last five years.

Now that I’ve sold Standard Chartered at a loss I’ve decided to raise that requirement even further. Here’s my new CET1 rule of thumb:

  • Only invest in a bank if its Common Equity Tier 1 (CET1) ratio has been above 12% in every one of the last five years

However, rather than simply relying on a slightly more demanding requirement for the CET1 ratio I have also decided to include two additional capital ratios in my bank analysis process.

The Leverage Ratio (or the assets-to-capital ratio)

The leverage ratio is very similar to the CET1 ratio in that it compares assets to capital. But in the version of the leverage ratio that I’ll be using, assets are not risk-weighted and capital is taken to be total capital rather than common equity tier 1 capital.

This leverage ratio is easy to calculate. It’s simply tangible assets (total assets minus intangible assets) divided by tangible capital (tangible assets minus total liabilities), which is slightly confusing because the CET1 ratio is capital divided by assets rather than assets divided by capital.

Here’s a chart showing the leverage ratios for many of the UK’s major banks. The general trend towards less leverage and stronger balance sheets is obvious.

Bank deleveraging - leverage ratio 2017 03
Returning from the excessive leverage of the pre-crisis banking bubble

In 2008 at the peak of the pre-crisis banking mania, Standard Chartered, HSBC, Lloyds, Barclays and the Royal Bank of Scotland had leverage ratios that were far higher than they are today. Lloyd’s in particular was way “off the chart” with a leverage ratio of more than 80. Fast forward to 2016 and after a decade of capital building those leverage ratios are now all below 20.

As you can see, by this measure Standard Chartered (in red) was for much of the period the least leveraged and best-capitalised bank out of this group of admittedly seriously over-leveraged and under-capitalised banks. So investors were right to think that Standard Chartered’s balance sheet was relatively robust, but being robust relative to a collection of fragile banks is not the same thing as being robust in an absolute sense.

Since I’m going to use the leverage ratio when analysing banks in future, I need to set an absolute (rather than relative) hurdle rate. Since the rights issue, Standard Chartered’s leverage ratio has been slightly below 15, so I’m going to use that as my hurdle rate.

In my opinion, 15 is probably close to the perfect leverage ratio for banks that are under stress (and as a value investor I’m typically investing in companies that are under a not insignificant amount of stress).

Why? Because when companies raise capital through a rights issue in order to strengthen their balance sheet, they tend to “kitchen sink” it. In other words, management works out how much extra capital the company actually needs and then they try to raise that much plus an additional significant safety buffer.

They do that because if they don’t raise enough capital the first time around and end up having to go back to shareholders to raise even more capital, they will definitely lose their jobs.

So here’s my leverage ratio rule of thumb:

  • Only invest in a bank if its leverage ratio (tangible assets / tangible capital) has been below 15 in every one of the last five years

This currently rules out every UK bank, but that’s a price I’m willing to pay in the name of risk reduction.

The Gross Revenue Ratio (or the revenue-to-capital ratio)

In this capital ratio, the measure of risk is gross revenue. The idea is that if two banks have the same total value of tangible assets (a reasonable proxy for the value of their loans), the bank with higher-risk loans will generate more interest income, so measuring gross revenue is a simplistic way to differentiate between banks with higher and lower risk loans.

Again, the ratio is easy to calculate. It’s simply gross revenues (interest income plus other income) divided by tangible capital (tangible assets minus total liabilities), expressed as a percentage.

Here’s another chart, this time showing the revenue ratios for those same major UK banks. As before, the deleveraging trend is easy to see.

Bank deleveraging - revenue ratio 2017 03
More evidence of the huge deleveraging that has occurred in recent years

All of the banks generate far less revenue (i.e. take on far less risk) per pound of capital today than they did before the banking crisis. This is of course a very good thing, for both the banks and society in general.

Gross revenue for most of the big banks is now less than 50% of tangible shareholder capital and my initial thought was to use that 50% figure as the maximum allowable gross revenue ratio.

However, some smaller banks are able to generate much higher margins on their loans than the big banks, mostly because they provide a much more bespoke service to smaller companies that the big banks are not interested in.

Higher margins give these banks a gross revenue ratio of more than 50% because they charge more interest per loan, but these banks are nowhere near being overleveraged according to the leverage ratio.

So as a compromise, I’m going to set the maximum gross revenue ratio at 100%, i.e. gross revenues should not exceed tangible capital, and as usual, I want this to be true over the last five years. Hopefully, this rule will be tight enough to exclude reckless banks whilst being open enough to not rule out prudent but high-margin banks.

Here’s the rule of thumb:

  • Only invest in a bank if its gross revenue ratio (total revenue / tangible capital) has been below 100% in every one of the last five years

Most of the big banks now pass this test, partly because they generate such low returns from their loans. But that’s okay because a) it would have ruled them out before and during the financial crisis and b) they still fail the leverage ratio rule.

If you want to know more about these ratios you could do worse than read Capital Ratios as Predictors of Bank Failure (PDF), from the Federal Reserve Bank of New York.

Selling: A suspended dividend is an automatic sell signal

As a result of Standard Chartered failing to pay a dividend for more than a full financial year, it has dropped out of the UKVI stock screen, which requires all companies to have an unbroken record of dividend payments going back at least ten years. This means Standard Chartered can no longer be compared with the other holdings in the model portfolio, or at least compared according to my investment strategy.

This – along with the fact that it is not at all obvious when the dividend will reappear – makes the bank an automatic sell, which is why I chose to sell it at the start of March, removing it from both my personal portfolio and the model portfolio.

The proceeds will, as usual, be reinvested next month into a hopefully more successful investment.

Read the full pre-purchase review of Standard Chartered in the July 2014 issue of UK Value Investor (PDF) or read other back issues in the newsletter archive.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

16 thoughts on “Standard Chartered and the importance of a strong bank balance sheet”

  1. Great article, John

    I’m no fan of banks, as they complicate with so many operating divisions and subsidiaries. Although your ratios are excellent, they are useful if you have all the financial information.

    The big banks have many subsidiaries. These subsidiaries get into trouble (i.e. liquidity crunch). In turn, affecting the value of the assets on Standard Chartered’s balance sheet. In some cases, Standard Chartered may lend these subsidiaries money. So, it can maintain the value of their subsidiaries assets on its books.

    So, unless you start looking at the financial accounts of every Standard Chartered subsidiaries. Then we don’t know the exact risk of its balance sheet.

    But the ratios are great for domestic banks with less operational divisions with a simple banking business model like Virgin Money or Aldermore.
    Standard Chartered was an easy mistake to make, but the problems are detectable if you know where to look.
    For me, China is the key to Standard Chartered downfall because both these entities are related, directly and indirectly.
    The first clue was China’s housing market when prices fell close to 6% in early 2015. With falling house prices in China, the demand for commodities like copper, iron ore, zinc and so forth decline. And, ironically, most of these commodities are found in other emerging economies. (no doubt, Standard Chartered has banking operations there)
    The second clue is falling commodities prices (refer to the first clue for reasons why).
    The third clue is the deceleration of these economies like Turkey, Brazil, and slowdown in S.E. Asian Economies. Also, Africa, too.
    When you put one and two and three together, the loans Standard Chartered thought were good, do not look kosher.
    P.S. I’m pretty sure construction companies forward buy commodities in the marketplace, which can delay pain, before it became painful.

    More recently, China saw house prices rebound, which aided Standard Chartered shares, along with commodities prices. That too is coming to an end. So, I expect Standard Chartered shares to fall again. BTW, it looks like the right time to sell your shares.

    1. Hi Walter. Yes I definitely agree that banks are big, complex and probably impossible for most investors (including me) to understand in any great detail.

      However, I still think these ratios should (hopefully) prove to be useful. Their simplicity is in fact an advantage, which is why regulators have started to include these simple ratios in addition to the usual more complex ratios like CET1. The Fed paper that I linked to shows positive correlations between these simple ratios and subsequent banking failures.

      My approach to the complexity is to do my best to ignore it, just as I would ignore the enormous engineering and social complexity of a cruise ship if all I wanted to do was go on a cruise. Yes, sometimes they sink, but these ratios are designed to spot banks which are most obviously at risk of sinking, so that I can avoid boarding them in the first place. Especially since, as a value investor, I’m typically looking to board these ships in bad weather because that’s when the ticket price will be low.

      The three “clues” that you’ve mentioned are more or less the same as the “perfect storm” that management spoke about. However, even in a perfect storm I don’t want my the companies I own to sink, i.e. suspend their dividend and launch massive rights issues. I think if StanChart had a very robust balance sheet in the first place (as defined by these ratios) then it would have stood a far better chance of perhaps just cutting the dividend and not having to issue new shares. It could have also looked to gain market share where other less robust banks would have been struggling in the storm.

      As for this being a good time to sell… I hope you’re right! A few years from now we’ll know for sure.

      1. Thanks for the response.
        Having given your ratios further thoughts, the parameters you set would indicate the banks are being ultra conservative when it comes to lending.
        It would restrain the banks from making big profits during good times and big losses during bad times. Instead, banks would make sustainable profits for the long-term.

        Mr Greenspan once described the 2008 financial crisis, as a one in a hundred years event. With global debt reaching record highs, it could be a once in a decade event. So, the perfect storm is becoming more frequent in nature.

  2. “Selling: A suspended dividend is an automatic sell signal”

    At what point after a dividend is suspended would you sell? In this example an immediate sell would have made your losses worse. In other words why did you sell when you did? Also would the converse apply, the introduction of a dividend being an automatic buy signal?

    1. Excellent question Andrew; I can see I need to clarify that statement a bit.

      I am not known for my rapid reaction times, so for me automatic does not mean immediate.

      Also, by suspended I don’t mean just that the company suspends its dividend. What I mean is that the dividend is suspended and that no dividend is paid for at least one complete financial year. The main reason for this particular rule is simply that my stock screen demands a 10-year unbroken record of dividend payments, and if the latest year’s dividend is zero then the stock will be excluded from the screen. It is this dropping off of the screen, rather than the dividend suspension, which is the main sell signal.

      So in the case of Standard Chartered, it cancelled its dividend in the middle of last year and failed to pay a final dividend for 2015. However, because it had already paid an interim dividend in 2015 the 2015 dividend wasn’t zero, so it didn’t drop off the stock screen. As a result I continued to hold, and management had explicitly held out the possibility of the dividend being reinstated before the end of 2016 (if I remember correctly).

      However, the recent 2016 annual results announced that there would be no final dividend for 2016 and therefore no 2016 dividend at all. When I built my stock screen again at the start of March, Standard Chartered’s dividend was zero, so it wasn’t on the screen, and so that was the point at which I decided to sell.

      One final caveat is that, as you know, I buy or sell one holding (and only one holding) on alternate months, so if March had been a “buy” month I would have bought a new holding rather than sell Standard Chartered. The bank would then have sat in the portfolio for another month, effectively on death row, until the next “sell” month (which would have been April in that scenario) before being sold.

      As for a reinstated dividend being an automatic buy signal, no. Once a company has suspended its dividend for more than a full year it needs to build up that 10-year unbroken record of dividends again. In other words, it will take a full 10-years before that particular company becomes a potential investment candidate for my portfolio. So I don’t expect to be buying Standard Chartered anytime before 2026.

  3. “”However, rather than simply crying over spilt milk, I want to focus on why the milk was spilt in the first place and how I (and perhaps you) can try to avoid this sort of unpleasant situation in future.””

    John, You could adopt the position that Terry Smith has taken and that is never to invest in banks. It sounds extreme, but he wasn’t one of the top banking analysts in the city for many years for nothing.
    I think his argument is that the accounts are, what was the term — “the very definition of opaque”, and the very high leverage always means there is a chance of losing all of your money.
    I have to admit to having followed his lead on this and decided never to invest in banks or most insurance companies — I guess a way to stay out of trouble is to avoid it in the first place. There are so many good companies out there, why risk investing in a company that can not control it’s outcome in the event of severe financial stress.

    Also I always avoid investments that are heavily linked to the South African continent. Ok – sounds extreme, but is it? – Heart of Darkness 🙂


    1. The idea of banning banks did cross my mind, and perhaps I’ll go down that route at some point, but I think that’s the last resort option.

      For now I still feel there’s some merit in tightening up the criteria and watching how that pans out over the next few years.

      But if banks turn out to be very risky even when they’re conservatively financed then yes, I may just put a blanket ban on them.

      1. John, I don’t think there are any really hard and fast rules. The trouble with banks though, is that you are not often given any warning, you wake up one morning and it’s gone bust, or if you see a very long queue, you are usually too late .

        At least you can then wash your hands of it and put it behind you.
        Personally I think Lloyds, just as one example, is a massive risk — and I think this way just at the time everyone seems to think it’s now becoming a really well run company, is turning a profit and all is rosy with the dividends.
        The Fed raised interest rates today and there is every indication that it could do so 4 more times in 2017.
        The UK is the 53rd US state and ultimately will follow. If it does the UK housing market is going to get crucified and Lloyds is leveraged right to the hilt with mortgage exposure.


  4. Just wondering, how would tangible capital relate to shareholders equity? Would it be more or less the same for most banks?

    1. Hi Tim

      Interesting question. It’s fairly similar for most of the banks in the article. Here’s the latest ratio of tangible equity (capital) to shareholder equity (i.e. including intangibles):

      StanChart: 90%
      HSBC: 87%
      Lloyds: 92%
      Barclays: 89%
      Royal BOS: 87%

      So tangible equity is of course slightly smaller than total equity, by about 10% on average. There isn’t much difference from one bank to the next, so I don’t think having intangibles in or out of the asset/capital ratio makes much difference, but it’s more technically correct to exclude them.

      1. Thanks John. I’ve now had a go at calculating it and found for Admiral Group it can be 15-20% different. So you’re right – it’s better to stick to the more technically correct tangible equity.

      2. I just used your new ratios on Commonwealth Bank of Australia (CBA). Our biggest bank, which matches the other buy criteria and I managed to buy into a few months ago when the share price dipped for no good reason.

        But now I’ve added your new ratios I’m beginning to wonder if it was such a safe buy after all. There’s a lot of debate in Aust. at the moment about whether Sydney and Melbourne are in a house price bubble, and if so when/if it’ll pop. CBA is of course massively exposed to this.

        Common Equity Tier 1 (Basel 3) Ratio
        | Data | 2012 | 2013 | 2014 | 2015 | 2016 | Average |
        | CET1 | 7.82% | 11.00% | 12.10% | 12.70% | 14.40% | 11.60% |

        Leverage Ratio
        | Data | 2012 | 2013 | 2014 | 2015 | 2016 | Average |
        | Leverage Ratio | 22.62 | 21.17 | 19.76 | 20.07 | 18.32 | 20.39 |

        Gross Revenue Ratio
        | Data | 2012 | 2013 | 2014 | 2015 | 2016 | Average |
        | Gross Revenue Ratio | 0.62 | 0.59 | 0.57 | 0.55 | 0.49 | 0.56 |

      3. Hi Tim, going by those metrics CBA doesn’t look too bad, and is certainly better than most the UK banks.

        CET1 is 11.6% and rising, with the latest value at 14.4%. That average could creep above my rule of 12% as early as next year.

        Average Leverage Ratio of 20.4 isn’t bad either. I think offhand that’s about equal to the Canadian limit, although they use risk-weighted assets. LR for CBA is also improving towards my limit of 15.

        Average gross revenues are also very close to my limit of 0.5, and have also been improving.

        So I would say that based on this info it looks like a well-capitalised bank, and although not quite meeting my (very stringent) rules at the moment, it could do soon if it keeps strengthening the balance sheet (although obviously this is just a back-of-a-fag-packet analysis).

      4. Yeah I guess the fact their ratios are very nearly at (and heading towards) your criteria makes it fairly safe. Anyway, we never had a banking crisis down in here in Australia during the GFC so theoretically at least our banks should be in a much stronger position than your average European one.

        I also read in the news today our regulators are thinking of strengthening the capital requirements of our banks, so CBA should keep heading in the right direction, albeit with a possible hit to profits in the near term.

  5. Investing in banks …. I have tried too with mixed result.

    Investing in banks is a bet on the economies where those banks activate. If you want to do that, you are better off chosing a value fund in that particular geographical area, the results will be similar.

    One thing you learned is that having high return on capital, which we all want for every investment we make, is not a great measure when investing in banks’ stock. That usually means taking on the balance sheet more riskier loans. Anyone remember RBS return on capital rates pre-2007?

    The problem with deleveraging is that return on capital becomes so low that it is better to avoid banks as investments all together. You are also affected by the steepness of the yield courve which is beyond your control.

    I will stay for the moment with firms that make and sell Marmite, people still like it and buy it every day. And if somehow their habits change to Barbite, with some minimal expenditure in the factory and some little marketing the firm will sell some of that too using the same distribution channels.

    1. Hi Eugen, you’re absolutely right; banks are a bit of a nightmare. If leverage is very conservative then it’s hard for them to generate decent returns, especially in this super-low interest rate environment that we have. Crank up the leverage and the risks go through the roof.

      I would be surprised if I bought another bank anytime soon, but if they can get their acts together then you never know.

      And as you say, companies selling Marmite, soap and headache tablets are generally a much better bet.

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