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Scandals Set To Scare Off Many From Investing In Banks

Scandals surrounding the biggest names in the banking sector have left private bankers

questioning whether they should hold their money in these institutions. Interest rate manipulations have landed Barclays in a huge pool of fine worth 290 million. Besides, it has cost its chairman and chief executive their jobs, which was more than just a scandal.

Opinions are divided on whether investing in banks is a better deal. Some experts vote against buying into banks, whether it be directly, through the purchase of shares or via the acquisition of collective funds, given the uncertainties in the economic as well as regulatory framework. Yet according to the other school of thought, banks are considered to be a good bargain at current prices for investors. They are happy to stick to these funds in the long run.

However, there have been a lot of scandals in the banking sector recently that have brought about doubts among the investors. While the Libor scandal victimized people at the Barclays, on the other hand, huge numbers of customers at the Royal Bank of Scotland and NatWest were at inconvenience due to the IT meltdown, which triggered questions regarding the banks operations. Simultaneously, evidences were brought forth against big names like Lloyds, RBS and Barclays who had done interest-rate swaps with thousands of small players, leaving quite a few, bankrupt. Again, Barclays and RBS are among a number of banks who have been given lower ranks by credit ratings agencies.

Quite naturally therefore, investors are confused whether to hold their money with banks, in direct shares or through investments in pension funds, should you be concerned?

William Hunter, director of Edinburgh-based Hunter Wealth Management, is of the opinion that this scenario should keep out short term investors from investing in banks. However, it could be beneficial for long-term investors. According to him, There will be immense perceived value for the braver longer term investor and potential losses for the short-term foolhardy investor, because of low or no dividends and high volatility.

Haig Bathgate, Chief Investment Officer, Turcan Connell, believes that it is not the right time for investors to invest in banks. Id personally recommend that generally people avoid investing new money for the time being the good quality names such as HSBC are fully priced and there is still too much uncertainty surrounding the partially state owned entities and eurozone banks, he says.

Many brokers however, continue to argue that investors can buy into banks like Barclays. They point out that now the damage would be reflected through the prices of shares.

David Thomson, CFO at VWM Wealth Management, Glasgow, is of the opinion, A perennial problem of banks in both good times and bad is that they are so opaque and you never really know what you are buying.

by: Michael Costa
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