Investment Expert Sceptical on Banks' Prospects

UK banking stocks are unlikely to grow in value in the near future, a top analyst has suggested.

Fund manager Guy de Blonay, who heads up a financials fund at New Star, said that he would maintain a "defensive" position on banks, due to the continued troubles the firms are facing due to the credit crunch.

Over £100 billion worth of assets have been written down by banks across the world, as many of the financial products they hold become effectively worthless thanks to the credit crisis. Inter-bank lending rates have also been consistently high since the crunch began last summer - meaning that many firms continue to experience severe problems with raising revenue.

However, analysis from New Star indicates that bank chief executives are growing "increasingly confident" that the "worst" of the financial crisis is now over, setting the stage for stocks to gain. Nevertheless, Mr de Blonay claimed today, the general economic slowdown currently being experienced - particularly in America - might make investing in bank shares less of a good idea.

"Over the next few years, western banking profitability is at risk from rising bad debts, liquidity and capital market pressures, de-leveraging and regulatory pressures," he commented. "Until there are clearer indications as to the severity of the US economic slowdown and its impact elsewhere, it is prudent to maintain a bias towards defensive companies."