Aggressive fund managers are preparing to pour money into British banking shares when Sir John Vickers's report into reform of the industry is published in eight days' time.
Absolute returns and hedge funds, which have generally avoided investing in the banks since the onset of the financial crisis, are hopeful that the Independent Commission on Banking (IBC) will provide thorough details of the reform proposals. The greater the detail, the easier it will be for fund managers to work out how to make strong returns from investing in the likes of Royal Bank of Scotland and HSBC.
One absolute returns fund manager said: "Banks are a lottery. We're effectively taking no positions, as we need to get detailed rules on areas like capital buffers and defaults."
At present, conservative, long-only funds that invest widely in the FTSE are the banks' major investors, alongside the taxpayer in the bailed-out RBS and Lloyds Banking Group.
Sir John, after his year-long inquiry, is expected to recommend imposing minimum capital requirements to ensure banks can withstand major problems. He is also expected to confirm plans to ringfence retail banking from investment banking. This would mean that high street deposits would be protected should risky investments fail.
However, reforms are unlikely to be introduced until 2015, giving banks time to restructure. Angela Knight , the British Bankers' Association's chief executive, called for reform to be delayed until the economy has recovered and taxpayer have got their money back from the bailed-out banks.
RBS and HSBC are two of 12 banks being sued by a US regulator over billions of losses on mortgage-backed investments. The agency says the banks misrepresented the quality of mortgages ahead of the crisis.Reuse content