Lazy balance sheets pay off
Often criticised in the past for having ‘lazy balance sheets’, companies with conservative growth strategies that don’t rely on leverage are now the cream of the crop, according to specialist international equities investment manager Global Value Investors (GVI).
Using banks around the world as an example, GVI senior equities analyst Matthew Hegarty said those with high levels of retail deposits had the best chance of avoiding the global crisis.
Unfortunately though for local investors, during the ‘easy credit’ era many Australian banks relied on wholesale funding to grow their business, which has negative implications now that the funding has dried up.
“The banks need to rely on their primary source of income — the retail customer — to meet their current commitments, and they are doing this in some cases by increasing mortgage rates above that set by the Reserve Bank,” Hegarty said.
However, he said some global banks, such as those in Scandinavia, chose more conservative growth strategies and are now merely spectators of the global crisis.
“These banks have strong retail deposit franchises, fewer credit losses and little cost of funding increases. These are the types of banks we look for as investors,” he said.
Recommended for you
The central bank has released its decision on the official cash rate following its November monetary policy meeting.
ASIC has cancelled the AFSL of a Melbourne-based managed investment scheme operator over a failure to pay industry levies and meet its statutory audit and financial reporting lodgement obligations.
Melbourne advice firm Hewison Private Wealth has marked four decades of service after making its start in 1985 as a “truly independent advice business” in a largely product-led market.
HLB Mann Judd Perth has announced its acquisition of a WA business advisory firm, growing its presence in the region, along with 10 appointments across the firm’s national network.
