New Winners and Losers in the Financial World


Yesterday, we tabled the idea that the Aussie banks are in danger of having a swarm of nimble, smaller rivals pick apart their business models.

The same is true for any bank, anywhere.

One advantage to any new firm is that it can at least start with a clean reputation.

That’s opposed to the traditional players, who’ve done nothing but take their customers for granted for years.

Certainly, UK bank CYBG PLC [ASX:CYB] has done nothing to improve this impression with its recent form.

The stock crumbled 20% yesterday after the company shocked the market with a poor announcement.

What’s the story?

CYB has a ‘legacy’ issue.

Years ago, the company sold an insurance product inappropriately to a lot of its customers (sound familiar?).

It factored in a certain amount of money to pay off the complaints and cases around this.

Yesterday, it came out and said the amount of money it needs to cover this is way beyond what it originally said.

That’s not a place you ever want to be as a shareholder.

Hindsight is a beautiful thing.

I said above the stock fell 20% after this shock announcement.

However, it’s likely the market suspected something was amiss with CYB before this happened.

Let’s bring up a chart of recent action in the stock…

Source: Optuma

We can see it’s been sliding since August. The price is down over 40%.

Now, we can’t be sure if the market was worried about Brexit, the insurance problem or the dour outlook for the banks in general.

But it’s a tidy example of why it’s best to focus on stocks with a bright outlook and positive momentum rather than stocks that may appear ‘cheap’.

We talked about this recently in relation to AMP. Often, those stocks get cheaper.

Even now, I’m sure there are investors who are tempted to accumulate CYB at this level.

At some point, the remediation costs will get priced in and the stock will go back to trading on its core banking business.

Personally, I think you’re much better off focusing on the small firms that could capture market share off players like CYB.

The upside is potentially a lot bigger and faster…

Two cracking trades on the ASX this year

There’s been some cracking examples of this on the ASX this year.

I’ve told you about one of my trades this year — financial services company Credible Labs Inc. [ASX:CRD]. We sold it for a 187% gain since the low in February.

But even that great run looks pale to the skyrocketing job iSignthis [ASX:ISX] has done (I didn’t catch this one).

It’s an Aussie payment firm.

At the start of this year, you could have picked up iSignthis shares for 19 cents. Today, nine months later, they sell for $1.44.

That’s a 657% gain.

Those two moves are probably over, for now at least. But the underlying trend looks very solid to me.

My colleague, Ryan Dinse, has some ideas on which firms could be the next ones to crack open the financial industry. Check them out now.

If nothing else, please don’t go bargain hunting in CYB. The outlook for the British economy is highly unlikely to improve much in the near future.

One reason is Brexit. But the British property cycle is likely to hit a flat spot from here until about 2021.

I don’t think CYB is primed to make a lot of money anytime soon — and its primary business is mortgages.

I suspect — but could be wrong — that British banks may never regain their former position of power anyway.

If you read yesterday’s piece, you’ll know why — the coming wave of central bank digital currencies.

The Bank of England might have a digital pound going sooner than we think.

Regardless, make sure you check out Ryan’s latest report right here.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch