Speaking in Sydney yesterday, Wingate Asset Management chief investment officer Chad Padowitz said global banks are emerging as a significant investment opportunity.
Mr Padowitz said global banks are a “proxy for pessimism”, due to the fact that most global concerns are directed towards them.
However, “the banks today are very different animals than they were seven, eight, nine years ago. And also where they’re placed in terms of going into a recession [is] a bit different,” said Mr Padowitz.
Mr Padowitz explained that outside the energy space, their bad debts and non-performing loans are "pristine" – "there's no issues there".
Moreover, US banks specifically, according to Mr Padowitz, are buying back their own shares as much as is permitted by the US Federal Reserve.
“When you buy back shares and your book values are 70/80 cents in the dollar you’re buying back your own loans that are well provided for and [repaying] at 80 cents in the dollar […] is substantially accretive,” he said.
“As time goes on it shows up and I think there’s a great opportunity provided that we don’t hit a severe recession.”
Mr Padowitz pointed out that the most compelling global banks at the moment are both Bank of America and CitiBank.
He also believes talk of a recession is overdone, particularly in the US.
"When you go into very low growth rates the concept of a recession becomes less relevant. It’s very easy to have a soft quarter and suddenly you’re at the zero line,” Mr Padowitz said.
"I think over the next five to 10 years the concept of recession is going be; you’re either in a severe recession or it’s a non-issue."
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