Banks Hit New Highs on Rule Changes


LONDON -- In 2012, there were two main concerns weighing down bank share prices. First, the possibility of eurozone meltdown. The second biggest concern was that regulators would introduce rules that constrained banks' ability to do business and make profits.

However, an announcement from rulemakers last night suggests that the new requirements may be more bank-friendly than the market had been anticipating. Central bankers from around the world have decided that banks will be able to use a much wider range of assets to meet their capital requirements. The effect is that the banks will have more cash available for loans to businesses and perhaps shareholder dividends, too.

This news has seen shares in the U.K.'s banks reach new highs:

This morning, the sector's biggest bank, HSBC, is up just short of 1% to its highest in more than 18 months.

Shares in Barclays are up 3.5% to their highest price since April 2011.

Asia-focused Standard Chartered is up 1%, trading close to a high for the year.

Lloyds Banking Group is up 1.8%, taking the shares above 50 pence for the first time since the summer of 2011.

My pick of the sector is Royal Bank of Scotland . This is the bank share that I am expecting the most from in 2013. This morning, the shares are up 1.2%. Throughout 2012, the big worry was that regulatory changes might mean RBS would have to raise more capital. Therefore, it is RBS shares that have the most to gain from any apparent easing of regulations.

My confidence in RBS is underpinned by the bank's fundamentals. In August, the bank confirmed that at the end of June 2012, it had a net tangible asset value of 489 pence. The bank is forecast to report earnings per share of 19.3 pence for 2012, rising to 27.6 pence for 2013. The bank is profitable, yet the shares trade at a 45% discount to its assets. I believe that discount is unsustainable and will narrow significantly during 2013.

Holding tight to my banking shares in 2012 proved to be a big help in making back my credit crunch losses. While I've still got some way to go, it is easy to see how repeat successful stock-picking can help even an ordinary investor toward that magic million. If you want to learn more about how shares can help you accelerate your wealth building, then get the free Motley Fool report "10 Steps to Making a Million in the Market." The report is 100% free. Click here to get this sent to your inbox immediately.


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David owns shares in Lloyds Banking and Royal Bank of Scotland but none of the other shares mentioned. The Motley Fool owns shares of Standard Chartered. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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