Is the Barclays share price good value after trading gaffes?

The Barclays [BARC.L] share price has struggled more than most this year. Over the past three months, the stock has suffered a near 32% decline and is trading at a level not seen since the start of 2021.

One cause for the faltering share price are several scandals that the bank has run into over the past six months. And if there’s one thing investors don’t like, it’s scandals. The latest from Barclays threatens to not only put a sizable dent in the bottom line, but also delay a mooted share buyback scheme.

Yet, the bank delivered a robust financial performance in 2021, in part due to its investment business - something of a rarity among UK banks. And with the Bank of England hiking interest rates, Barclays could be in for a period of strong revenue growth.

Does this combination of these factors could mean that the Barclays share price is at a uniquely low valuation?

What’s happening with Barclays’s stock?

Barclays’s share price has fallen more than 13.41% over the past month (as of Tuesday 19 April). In comparison, Lloyds [LLOY.L] share price has declined 7.35%, while Natwest’s [NWG.L] is up 2.55% and the wider FTSE 100 is up 2.15% over the same stretch.

Along with scandals, other headwinds facing not only Barclays but UK banks in general are pessimism over the post-pandemic recovery and rises in the cost of living, which could dampen customer demand.

Barclays’s £450 million clerical blunder

Barclays is currently looking at a £450m hole in its finances after telling investors that it had accidentally breached the limits on the amount of structured retail products under US rules.

Such products package together investment strategies based on derivatives. The clerical gaffe goes back to 2019 but was only discovered this year. Barclays will now have to repurchase $15bn worth of assets at their original price. The bank has paused the sale of these products while the regulator investigates.

Worryingly, Barclays said that the error will delay its planned share buyback scheme.

The Bank of England has also warned Barclays - albeit in a veiled fashion - on “gaming the rules” over structuring pension plan deals to delay a hit to capital reserves. Barclays could be forced to unwind £1.25bn in deals should the Prudential Regulation Authority take a dim view of these transactions.

Trading gaffes and scandals are never a good look for a bank. Rival Lloyds saw its share price take a fresh £600m hit recently over the HBOS Reading scandal that took place between 2003 and 2007.

Is the Barclays share price too low to ignore?

An ultra-low interest rate environment has punished the bottom lines of UK banks. However, this is changing as the Bank of England hikes rates. The last three meetings of the central bank’s Monetary Policy Committee have each seen an increase in rates.

Some city analysts have predicted that the committee could once again raise rates to 1% when it next meets on 5 May. A tight job market and rising wages not keeping pace with inflation could all factor into the decision making.

Any hike should benefit Barclays earnings which have thundered back to life after the pandemic era lows. In 2021 the bank reported a full-year profit of £8.4bn, well ahead of 2020’s £3.1bn. During the results the bank announced its dividend for 2021 and announced a £1.5bn share buyback scheme - although the latter is now likely to be delayed.

Barclays also stands out from other UK banks due to its investment bank division. In 2021, this delivered a £5.8bn profit, largely due to an increase in fees for advice on mergers and fundraising.

“Taken together, our 2021 performance has enabled us meaningfully to increase returns to our shareholders, with £2.5bn of excess capital returned via a total dividend of 6.0 pence per share and £1.5bn of announced share buybacks,” Barclays CEO C.S. Venkatakrishnan said in a statement.

Barclays trades at a relatively low 5.7 forward price-to-earnings ratio, has a 4.19% forward yield and as a business is highly profitable. Should it manage to shake off the recent gaffes, then its share price could well gain making the current price point attractive.

Continue reading for FREE

Latest articles