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Equity fund managers retreat from European banks

Uncertainty about the scale of potential financial losses caused by coronavirus has accelerated a retreat from the European banking sector by global equity fund managers who have cut allocations to these lenders to the lowest level for at least a decade.

Actively managed global equity fund managers have reduced their exposure to European banks from 2.6 per cent at the start of 2018 to just 1.1 per cent, a record low according to Copley Fund Research. The consultancy examined data from 406 global equity funds with combined assets of $760bn dating back to January 2011.

This group of 406 funds has withdrawn $981m from the European banking sector over the past six months alone.

“Global investors are pulling investment from the European banking sector on concerns over deteriorating financial conditions for businesses and individuals as the pandemic feeds through to the underlying economy,” said Steven Holden, chief executive of Copley Fund Research.

Only 250 managers currently have an exposure to European banks — down from 313 in February 2018, according to Copley’s database.

HSBC’s popularity has weakened dramatically among global equity managers. Just 9 per cent have any exposure to the London-listed bank, down from a peak of 40 per cent in 2013.

HSBC is aiming to reduce annual costs by $4.5bn with an ambitious restructuring plan that will also result in the loss of 35,000 jobs over the next three years.

The restructuring plan has yet to win over City analysts. Fourteen analysts covering HSBC currently have a “sell” recommendation while just five rate the bank as a “buy”, according to Bloomberg data.

HSBC’s share price has fallen by more than a third this year.

“HSBC is fast becoming the hot potato of the banking sector. Every quarter has seen a fresh wave of closures from active global equity managers,” said Mr Holden.

Other banks that have fallen out of favour include Standard Chartered, ING of the Netherlands, BNP Paribas and Spain’s Banco Santander. All sit at record low levels of exposure among active global equity fund managers.

Only 7.9 per cent of those managers hold Standard Chartered, down from 30 per cent in 2013.

Standard Chartered’s share price has declined 41 per cent this year.

Jason Napier, an analyst at UBS, said it was difficult for European banks to know just how many of their customers would prove financially viable until government furlough schemes and other support measures for workers and businesses were withdrawn.

“Banks will have significant volumes of newly defaulted loans to identify and address. With a lot of wood in this area still to chop, we urge a cautious stance,” said Mr Napier.

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