US career bank criminal Willie Sutton was famously asked: why do you rob banks? He equally famously replied: because that's where the money is. The modern investor might say something similar. When banks stop provisioning they can be money-making machines.
What affects the banking sector's share price?
Investors considering buying into the banking sector need to know and understand the key items that will have an impact on share prices. Confidence underpins the industry. Damage that confidence and you will damage share prices.
The global financial crisis that is traditionally believed to have begun with the collapse of Lehman Brothers in September 2008, and saw several huge banks rescued by their national government, is the most extreme example since the great depression.
Conversely, the restoration of confidence will eventually reflate share prices. The level of regulation is also crucial. Excessively loose regulation paved the way for reckless behaviour which generated the crisis. Excessively tight makes it very difficult to be profitable.
Moving beyond the dividend, investors need to take into account a broader range of numbers to assess the underlying quality of the institution concerned. Yield, cover and growth all depend upon levels of capital and the strength of the underlying business.
Banks are arguably more exposed than other forms of business to the economic and political fundamentals of the economies in which they operate. This is probably because there are so many elements over which they have no control.
These include the level of interest rates, the expected direction of travel of interest rates, economic growth, economic forecasts and general levels of confidence.
What can make a company's share price fall?
The bigger picture matters more to banks than to most businesses. Once losses begin to mount, and confidence begins to falter, banks can fail unusually quickly. Lehman Brothers and Northern Rock are two very different examples of this phenomenon.
The word 'credit', remember, derives from the Latin word 'credere', to believe. Once depositors and other creditors stop believing in a bank, its days are surely numbered.
As with any industry, sudden large shocks will hit share prices, fast and possibly savagely. Never underestimate a financial institution's willingness and ability to mis-sell products. But even PPI hasn't proved fatal, demonstrating the resilience of large retail banks.
Once they stop making large provisions, they become money-making machines. Lloyds is still in a recovery phase, but resumed paying dividends in 2015 and in May reached the end of its days as a nationalised entity, earlier than once expected.
The removal of a certain level of unwelcome political risk should help to further reassure institutional investors. RBS must be looking on with envy.
How can one bank buck the trend?
Size, geographical spread and a conservative approach to doing business are probably the keys to longevity in a bank. HSBC is arguably the best example of a major bank that has bucked the trend of the past decade. It has sailed through the financial crisis. So far.
What makes it different? Its sheer size for one. A giant ocean liner is less troubled by choppy ocean waters than a small dinghy. The same has been shown to be true of banks. Other banks have been deemed too big to fail. HSBC actually is.
Its global presence is another factor. HSBC describes itself as one of the world’s largest banking and financial services organisations. It serves more than 37 million customers in 70 countries in Europe, Asia, the Middle East and Africa, North America and Latin America.
It has around 4,000 offices worldwide and aims to be where the growth is, connecting customers to opportunities, enabling businesses to thrive and economies to prosper. Spreading its eggs across so many baskets minimises the chances of all breaking at once.
Listed on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by about 204,000 shareholders in 133 countries and territories.