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Multi-Asset Blog - The 3-6-3 Rule

Tuesday, July 11, 2017

Will Bartleet, CIO and Portfolio Manager of Pacific Multi-Asset
The 3-6-3 Rule

Bank managers used to operate on the 3-6-3 rule: borrow at 3%, lend at 6% and be on the golf course by 3pm. Ultra-low interest rates and QE has pushed down the spread between the cost of borrowing and lending which has had a detrimental effect on their net interest margins. Rising bond yields relieve this pressure, and this combined with far fewer fines, an easing of the regulatory environment and cost cutting means that earnings are growing again.

Another key feature of banks is that their balance sheets are considerably stronger than they were before the financial crisis. The Federal Reserve in the US carried out a stress test last month which was passed by all 34 institutions and has been followed up by announcements from the big six banks that they will increase payouts by nearly $100bn, an increase of nearly 50% since last year’s test.

Finally, financials are one of the very few sectors to be trading at a discount to their historic valuations – at 1.1 times book value compared to the 30 year average of 1.7 times.

IMPORTANT INFORMATION | Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation in respect of such securities or other financial instruments. Where past performance is shown it refers to the past and should not be seen as an indication of future performance.


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