The Department of Justice slapped a colossal $14bn fine on it for the sale of bad mortgage securities almost a decade ago. The sum will be subject to a much-reduced counter-offer from Deutsche Bank, of course, although a hefty hit fine is widely anticipated.

Some pundits have suggested the move was motivated by the EU’s decision to make Apple pay up to €13bn in back taxes earlier this month. Still, the decision further illustrates that regulators are rapidly running out of patience with banking’s major culprits.

Washington woes

Indeed, Bloomberg reported that US law enforcers are considering backpeddling on a deferred-prosecution agreement made with HSBC in 2012. The bank was fined $1.9bn for money laundering on condition that it improved internal controls and submitted to an outside monitor. But the deal could be scuppered should current investigations into currency market manipulation result in criminal charges.

Barclays and Royal Bank of Scotland are also sweating over severe regulatory action in the States too. Like Deutsche Bank, both firms are being investigated there for the wrongful sale of residential mortgage-backed securities in the run-up to the 2008/09 financial collapse.

And closer to home, the long-running saga of mis-sold PPI protection is yet to come to a head. The Financial Conduct Authority has already put back a proposed claims cut-off date, and a deadline of 2019 is now in mind. Lloyds is the biggest culprit here, the firm having set aside £16bn to cover costs already.

Sales struggles

But these aren’t the only problems to test the nerves of banking investors, naturally. An environment of low interest rates continues to whack profitability, and this looks set to continue as insipid global economic data continues to roll in — indeed, fresh stimulus in Europe and Japan in particular is being touted in the months ahead as economic turbulence continues.

Protracted cooling in Asia looks likely to keep sales under pressure at Standard Chartered and HSBC, while growing turmoil in Latin America is putting the earnings outlook at Santander under intensifying pressure. These firms also face further hefty losses from their commodity market trading activities.

And back in the UK, the full implications of Brexit on everything from credit demand and mortgage applications to business loans is likely to hammer those operators dependant on a strong domestic economy. Lloyds and RBS look particularly vulnerable given their small international footprints.

Risk vs reward

Could any of the firms be considered attractive ‘contrarian’ buys at the moment?

Hmmm. Standard Chartered offers stonkingly-poor value, in my opinion. A forward P/E rating of 31.4 times is indicative of a firm with white-hot growth prospects, rather than one in the early throes of huge restructuring and ongoing revenues woes.

Barclays’ multiple of 15.6 times and RBS’s reading of 15.7 times, like HSBC’s ratio of 13.2 times, are a vast improvement in terms of valuation, but still trade above the yardstick of 10 times indicative of high-risk stocks.

In this regard I believe Santander and Lloyds are more fairly priced, the banks dealing on prospective ratings of 9.7 times and 7.8 times respectively.

While these figures may tempt many hardy bargain hunters, I for one would resist taking the plunge given the scale their problems in the near term and beyond.

The post When will it be safe to buy into the banks? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

This strength does have some logic. After all, the FTSE 100 is packed with companies whose massive international exposure minimises the possibly-negative implications of the leave vote. And of course many stocks with huge overseas operations also stand to gain from heavy sterling weakness in the months — and possibly years — ahead.

Pound perils

Indeed, demand for the UK’s big-caps could carry on rising should the pound continue to haemorrhage value as many experts are predicting.

Both HSBC and Goldman Sachs are convinced that sterling will plumb to 1.20 against the US dollar by the end of the year, worsening from the 31-year trough below 1.30 hit in recent days. And Deutsche Bank expects a slip to 1.15 in the months ahead.

Bank action

As well as reflecting fears concerning the domestic economy, the pound has also lost value as the market expects an imminent interest rate cut by the Bank of England.

However, this may not be the only round of action bank governor Mark Carney and the Monetary Policy Committee may have to take, with Nomura expecting another rate reduction in November.

On top of having further negative implications for the pound, the prospect of extra liquidity flooding into the system could bolster the FTSE 100 still further.

Withdrawal symptoms

The appointment of Theresa May as prime minister — thereby truncating a possible three-month wait for the next PM — has also propelled the FTSE 100 recently, soothing the nerves of those fearing a prolonged British withdrawal from the EU.

Although a remain supporter prior to June’s vote, May has vowed since then to deliver Brexit. But this is unlikely to be the end of the matter. Indeed, other EU leaders are likely to try to play hardball concerning access to the single market, a development that could still lead to huge delays in Article 50 being triggered.

Meanwhile, the likelihood of last month’s referendum being upheld remains a bone of contention as calls for a Parliamentary vote on the matter circulate; lawmakers pore over the whether Brexit is constitutionally viable; and the government negotiates while trying to hurdle a severe economic shock and possible break-up of the UK.

In other news…

The tetchy political landscape isn’t the only factor that could send the FTSE 100 sinking again. As I’ve long argued, the index’s huge weighting towards energy and mining leaves it in danger of a correction should supply and demand indicators continue to worsen.

For one, the stream of disappointing economic data from China is unlikely to end soon, piling further pressure on commodities suppliers.

On top of this, Britain’s blue chips aren’t completely immune to the prospect of a domestic recession. Banks like Barclays and Lloyds still deal at a significant discount to their pre-referendum levels, while housebuilders such as Persimmon have also fallen thanks to their dependence on a healthy British economy.

Given this broad range of factors, I believe it’s nigh-on impossible to confidently guess where the FTSE 100 will be moving to in the weeks and months ahead.

The post Is the FTSE 100 heading to 7,000? appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What’s more, there are now some serious concerns that a full-blown banking crisis may take place within Europe, and this is likely to put the brakes on the continent’s already fragile economic recovery.

Unfortunately, it may be the case that banks on the continent are already starting to put the brakes on loan growth. In the past, analysts have linked bank share price performance to loan growth. So falling bank stocks across Europe may already be causing lenders to reconsider loan applications.

International trading giant 

Depressed share prices may also lead to a wave of mergers and acquisitions among the major banks as they try and achieve better returns in a low-interest rate environment. 

There’s plenty of speculation by analysts on Wall Street that banks could be the perfect M&A targets. Barclays (LSE: BARC) is one of the names that keeps coming up again and again. Barclays is one of the few European banks that can compete with its US peers in the field of investment banking. However, the bank isn’t big enough to be able to dominate the European investment banking market and efficiently take on US rivals. This is why analysts believe that Barclays would do well to merge with Deutsche Bank.

Deutsche Bank is another of Europe’s largest investment banks and by combining with Barclays, the enlarged banking group would be able to compete effectively for business with US rivals. Granted, both Barclays and Deutsche have their own problems and are both trying to slim down their investment banks. But by combining, the synergies available could help the banks cut costs faster and more efficiently while being able to achieve additional economies of scale.

Asian exposure 

Standard Chartered (LSE: STAN) is another possible target. It’s a lot easier to believe that Standard could be brought out by a larger peer. Many large US banks would love to have the same exposure to Asia as Standard and after recent declines in the bank’s share price, they would be able to get their hands on this exposure without having to pay a premium. At time of writing, Standard’s market capitalisation is £19.4bn; that’s around 10% of JP Morgan’s market capitalisation of $227bn.

JP Morgan could be a potential acquirer. You see, the US bank has been trying to increase its presence in wealth management over the past few years to reduce its dependence on traditional banking activities, which are producing lower and lower returns. At the same time, Standard has been restructuring its operations to focus on wealth management in Asia as lending in the region becomes riskier. If JP Morgan is looking to get exposure to the Asian wealth management market, Standard could be the perfect bet.

The post After recent declines, are Barclays plc and Standard Chartered plc bid targets? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.