BANK STOCKS ARE flying, investors are bullish and financial regulators are wary of rocking the boat. It’s hard to believe that it is only a year since the collapse of Lehman Brothers brought the global financial system to its knees and governments were forced to use taxpayers’ money to prop up some of the world’s largest institutions. A so far moderate regulatory response has suited investors, who have been enjoying the benefits of the startling rally in banking stocks. The FTSE Eurofirst banks index, which comprises the largest European bank stocks, rose by 131% over the six months to the end of August, compared with a 43% rise in the FTSE Eurofirst 300 index of the largest stocks in the region across all sectors over the same period.
It could be that funds are simply trying to recoup losses suffered over the past two years. Or that they believe the banking industry as a whole has been severely undervalued. But the important issue is whether or not fund managers and the analysts who cover financial institutions will make the same mistakes again.