While everyone’s been busy talking about AI and chasing the next big thing, UK banks have gone completely under the Vestment radar and quietly pulled ahead of some of the world’s most hyped companies.
And all the big British lenders have stuck to the basics: making money, sharing it with their investors, and taking advantage of a steady home market. In a year where everyone claimed AI would change everything, old-school banking has done VERY well!
About the basics....
For starters, higher interest rates may be bad news for borrowers, but they are great news for banks wqho have beneffited from an underlying mechansism which helps them fatten up profit margins. The banks used these extra earnings to hand out generous dividends and buy back shares, which has made them a lot more appealing to investors who want steady gains, not just hype.
Politics plays a part too. Unlike in the US, where banks can find themselves in the firing line, the UK government has been surprisingly easygoing with its lenders. Scandals and threats of tough taxes fizzled out. Instead, banks got a seat at the table, some reassurance, and the freedom to get on with business.
This is the kind of stable political context that markets tend to like!
Banks better than tech...?
Compare the performance of UK banks US tech stocks. Big names like the “Magnificent 7” trade on dreams of future breakthroughs, not what they’re earning right now. And I guess future prospects are more susceptible to shocks than current returns.
In short, tech optimism isn't everything!
Final thoughts...
There is of course another side to all of this... Banks doing well while much of the rest of the UK economy drags isn’t exactly a feel-good story. Profits built on higher interest rates mean households are feeling the pinch, even if shareholders are cashing in. So, while the banking rally is impressive, it’s a bit uncomfortable too!