BRITISH banks’ stock market valuations could rocket by 20 per cent by 2014 and even double in the next three to five years as investors regain confidence in a sector, according to a PwC report out today.
Shareholders have been pummelled since the financial crisis, as uncertainty and new regulatory costs have plagued the industry.
But stability should return as scandals are addressed and new rules and practices make the firms stronger in future, the report says.
In particular, PwC argues rising capital levels are hitting profitability currently but should improve stability in the future.
“The market has yet to take account of capital structures’ cost of equity,” explained author Miles Kennedy.
The report predicts banks’ cost of equity will fall to eight to 10 per cent, while the return on equity will stabilise at nine to 11 per cent – leaving a healthy margin for banks relative to the years since the crisis.
However the full scale of share prices rises will depend on other factors – “There are many unknowns including when the economy will stabilise, but when it does that should see further boosts to bank stocks,” said Kennedy.