Investors want to buy shares in boring and profitable banks, rather than in those that play the 'casino' of investment banking, according to Haig Bathgate.
This was amply demonstrated yesterday in the market's reaction to Barclays' reorganisation plans. Shares in the company jumped almost 9% to a two-year high after Barclays' Chief Executive Officer Antony Jenkins slashed jobs in the investment banking unit, closed down divisions that posed a reputational risk to the firm and said he believed in a company that was"behaving well''. Following a string of crises for the financial industry, including the recent Libor fixing scandal, investors are averse to holding shares in banks that earn too much of their money in risky ventures, and Jenkins is right to take these steps.
Overall, stock markets are riding high at the moment as sentiment improves, and have been bolstered recently by positive data coming out of the US housing market. More generally, fears over the global economy and the state of the euro continue to subside.
But companies will suffer if they don't alter their businesses to take into account changing consumer behaviour, and the fact that people are still feeling the pinch. HMV's difficulties show it failed to keep up with the trend of purchasing music and films over the internet. At the same time, increased inflation means that people in the UK have less money to spend and are going to shop around for the best value – more often than not, that's over the Web rather than on the High Street.
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