This too will pass

This week, as a HBOS shareholder, I received its 2007 annual review in the post. Given some of the rumours that have been going around the stock market it is surprising that Halifax has sufficient liquidity to afford the postage costs of mailing all its shareholders!

Anyway the report starts with a report by the chairman, Lord Dennis Stevenson CBE. I would like to quote one sentence from his report:

"Gradually this current market liquidity dislocation will pass."

There you have it! It is not Armageddon, nor the end of all UK banks. Investors in UK banks, myself included, should print out this sentence and stick it above their laptop screen to provide perspective when reading the latest market rumours.

Of course Dennis could be wrong but he wasn't made a Commander of the Britsh Empire for telling big porky pies!

I think the market has totally mis-priced UK banks at the moment and I am putting my money where my mouth is. Each month I am buying more Barclays and RBS shares through a regular stock purchase plan. My expectation is that by the end of this year those purchases will be showing a healthy profit; of course it could take longer. But there is an 8% yield to make the waiting easier.

There are two ways this situation could play out for the banks. They could carry on doing what they are doing and when the liquid crunch passed their share prices will soar. Or they could go the way of Northern Rock and the shares will become almost worthless. The market is obviously deeply unsure which way things will swing. I do not believe Barclays and RBS will suffer this fate. For one thing it would be a disaster for the UK banking industry and the government will try not to let it happen.

But I don't think it will come to that. UK Banks are knuckling down, doing what they do best and eventually this crises will pass and investors will focus on something else.

Lets see if I am right!