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Don't Touch US Banks with a 'Bargepole': Investor

Wednesday, 12 May 2010 | 10:23 AM ET

U.S. banking stocks aren't clear of the financial crisis and investors should avoid them at all costs, Julian Pendock, partner at Senhouse Capital, told CNBC Wednesday.

Wall Street Facing More Investigations?
Reports of a justice department investigation into Morgan Stanley will not help perceptions of Wall Street and it may not be the last one to arise, Erik Strid from Strid Wealth Management Group told CNBC Wednesday. Although a second financial crisis is possible, Julian Pendock from Senhouse Capital said Asian banks have been increasing in value and growth.

"I wouldn't go anywhere near these banking stocks with a bargepole," Pendock said when discussing a report from The Wall Street Journal that Morgan Stanley is being looked into by Federal authorities for possibly misleading investors about its mortgage derivative products and betting against them.

"It'll be a while until the bodies stop floating to the surface," Pendock added.

- Watch the full interview with Julian Pendock above.

Last month the Securities and Exchange Commission charged Goldman Sachs with fraud for fainling to disclose alleged conflicts related to collateralized debt obligations.

"There are two issues facing banks," Pendock said. "Number one is what's on their balance sheets. And the second issue is, what happens if you mark-to-mark not just the assets on the balance sheets of the banks, but the cost of funding on banks."

He added that if the interest banks are forced to pay on debt rises sharply is could have serious implications for their balance sheets.

"Suddenly you've got massive negative carry on your balance sheet," he said.

Increased government regulation for the sector and the "mood turning against Wall Street," could also drag on U.S. banks, he said.

Erik Strid, managing director at Strid Wealth Management Group, agreed that investors should be concerned about the content of US banks' balance sheets. He added that the contagion from the Greek debt crisis could cause problems.

Strid added that there is a clear possibly of the financial crisis returning for a second leg.

Pendock recommended looking to Asian banks with strong growth potential instead of their U.S. counterparts. He said investors don't need to "buy dodgy deals that no-one really understands from dodgy investment banks."

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