The chickens come home to roost

This time last year as the credit crunch was starting in earnest I was wondering what all the fuss was about. Now as the UK banks report their first half results the results of the dislocation are easy to see.

HBOS reported EPS down 52% when including various negative fair value adjustments to their assets. Not including these assets EPS was down 13% at 47p.

Using that 47p figure gives HBOS a 2008 PE of 3.5! And the directors guide for a stronger second half of 2008.

I believe that UK banks are very cheap here. Over the last four months I have been buying into Barclays and RBS on a monthly basis. My Barclays shares are now inching towards break even. The bottom may have been hit for the banks this summer.

It has been hard to keep buying banks when their price keeps falling and the news flow is terrible. However Warren Buffet's greatest investments were made by buying into companies that had suffered a temporary glitch such as GEICO when it almost went bankrupt in the 70s or Coke when it changed cola flavour in the 80s.

I believe this is a temporary glitch for the banks. The are making mountains of profit even now!

Lets review their position in 12 months time and see if I am right!