Could challenger banks become the new leaders in the financials sector?

Fear over banks' profitability

While more established banks appear to suffer due to market volatility, the likes of Virgin, Shawbrook and Aldermore appear to buck that trend, writes Jamie Clark, co-manager of the Liontrust Macro UK Growth and Macro Equity Income funds

The contrast in business prospects between large high-street incumbent banks and the newer 'challenger' banks has been mirrored in their share price returns over the last year. This is illustrated by the constituent performance breakdown of the FTSE All Share Banks sector (see graph, left). Fears over banks' profitability in a world of negative interest rate policies (NIRP), combined with the presence on balance sheets of complex liabilities such as CoCo bonds, have driven the banks sector 20% lower over the last year, compounding its stalled recovery from the global financial crisis. A ...