"The new banks are not taking over from the old ones," insists Martin Cross, banking analyst at stockbrokers Teather & Greenwood. "They don't have residual investment banking operations or non-performing Third World loans to worry about, but the converters do have to face the problem of profit margin pressure, because they are more concentrated on a net interest intensive business, mortgage-lending, which is very competitive and very commoditised."
"My view is that the new banks are not as good an investment proposition as the older banks," agrees Jeremy Batstone, of NatWest Stockbrokers. "For the past four or five years, banks have been enjoying something of a golden era, with their revenues growing strongly. The fact that the current set of results have been generally fantastic reflects the fact that banks have been reporting on a period that has been extremely benign."
The "golden era" cannot last forever, and Batstone is less than enthusiastic about banks in general. "We are not greatly keen on the whole sector because of its high rating and also because the direction of both the UK and global economies is extremely unclear.
"However, if you have to hold them, and with banks accounting for over 17 per cent of the FTSE 100 many investors will have to be in, we would tend to stick with the clearing banks. We are looking at those banks who can offset pedestrian revenues with greater cost cutting. The first signs of cost cutting are coming through in NatWest's figures. Barclays is in much the same situation and Lloyds TSB still has benefits to come from the merging of its operations."
"Apart from Abbey National's announcement last week, bad debts have not really ticked up yet," Martin Cross adds. "As a result, banks have either got adequate cash balances or too much cash, so they either announce big dividends, like Lloyds TSB, or share buy-backs, like Barclays & Woolwich. Or they can do both and carry out a major share restructuring, which is what Halifax has done."
"We would separate the banks into three subsectors," explains Andrew Spencer, head of European & UK equities at Fleming Asset Management. "One grouping are the predominantly mortgage banks, the second are the Far Eastern banks and the third are the old established clearers.
"Broadly speaking, we are reasonably positive on the clearing banks, particularly the two Scottish banks [Bank of Scotland and Royal Bank of Scotland]. " He adds: "We don't think there will be a serious bad debt cycle this time round as the economic picture is not as severe as was anticipated. However, these two banks in particular have been very lowly rated because they have been regarded as growth stocks and growth in this sector is traditionally associated with risk of high bad debt levels."
He contrasts this with Flemings' view of the two Far East banks, HSBC and Standard Chartered. "We are underweight in the two Far East banks as we believe the washout from the Far East crisis is still coming through."
Another factor that perennially drives interest in the sector is the possibility of merger or takeover activity. "The UK banking sector has been consolidating for some time," argues Ken Murray, chief executive of Cairngorm Asset Management, which is in the process of launching a specialist European Financial Sector Restructuring fund.
"There is still a long way to go and the converted building societies are protected from hostile takeover for five years from floatation, so the life expectancy of most will be five years and one day. I expect companies like the Woolwich and the Alliance and Leicester will be taken out and both the Scottish banks will either go or be involved in some kind of merger."
Andrew Spencer is more cautious. " Mergers in the UK are harder than people think, otherwise they would have already happened. The fact that the Halifax chose to give a large amount of cash back to its shareholders should tell you something : it probably wouldn't be allowed to buy up another mortgage bank in any case," he points out.
"Continental European involvement in the UK is almost inevitable," argues Ken Murray. "You are already seeing this in the life assurance market with the likes of Aegon and AXA and I hope you will see UK banks going into Europe too."
"There is a possibility that you could see mergers with European banks in the future, but they would have to be genuine mergers rather than straight takeovers," claims Andrew Spencer. "It would be interesting if a bank like Lloyds TSB could get its hands on an inefficient European bank. Cost savings would come through, but not as quickly as you might think - after all, there would be virtually no duplication of services."
UK investors, however, seem to be more than happy with the returns to be currently had from the sector. "Whilst investors are reclining on rates of return on equity in excess of 20 per cent, they will be quite happy for the banks to trundle on," suggests Jeremy Batstone. "A much tougher economic environment in the future will cause investors to ask questions and I believe consolidation will happen, but it is not imminent."
"Our favoured banks at the moment are definitely the two Scottish banks," points out Flemings' Andrew Spencer. "Barclays' case is unproven at this stage. NatWest still has a lot to prove. So far, it has been the least effective in garnering cost savings but if the imminent set of results are good, its shares could have a long way to go. We would view Lloyds TSB as OK to mildly good."