Stock Watch

Can you bank on Barclays’ share price to recover?

CMC Markets

It’s been a bleak 2020 for the Barclays share price. The bank has seen its stock fall 43% year-on-year, as the Covid-19 pandemic took hold and concerns over Britain’s exit from the EU became all the more pressing, with a no-deal scenario looming.

With Lloyds, Natwest and HSBC also releasing their numbers in the coming days, movement in the Barclays share price may act as a bellwether for how the City reacts to the sector as a whole.

Economic slowdown hits the Barclays share price

One of the starker characteristics of UK banks Q2 earnings numbers was the impact the economic slowdown, caused by the pandemic, was having on their profit margins, as well as the rise in non-performing loans.

As their customers face financial struggles due to regional lockdowns, loss of wages during the furlough period, or unemployment, loans are at risk of default. This is unlikely to get any better in the coming months as lockdown measures are tightened in various local areas, and job losses start to rise as the government-assisted furlough period ends. While new measures have been put in place to allow furlough to continue, the terms are much less generous than those previously on offer, and may do little to mitigate redundancies.

In the first-half of this year alone, Barclays set aside £3.7bn in respect to non-performing loans. A recent theme has seen banks allocating less money towards bad credit going forward, a trend Barclays might follow at the next announcement

Impact of no-deal Brexit and negative interest rates

Barclays, along with the whole banking sector, also find themselves looking at potential negative rates from the Bank of England. The central bank believes that more must be done to encourage consumer spending and business investment as a second-wave of Covid-19 lockdowns seems inevitable.

Banks are also at the mercy of the ongoing Brexit discussions, with the uncertainty surrounding the outcome leading investors to tread cautiously. The current impasse in negotiations leaves the British people in the dark as to what will happen when the transition period ends on 31 December 2020, and the UK leaves the single market and customs union, with trade continuing on WTO terms.

Barclays have said that they are “continuing to review the services we offer to customers within the EEA”, as the lack of a post-Brexit trade deal caused the sector to take evasive action. It’s yet to be seen what a no-deal will mean for the Barclays share price if it was to become reality.

Better news from investment banking operation

Fortunately for Barclays it does have other revenues streams away from retail banking which it finally now appears to be seeing the benefit of, despite pressure from some shareholders to spin-off. Investment banking revenue has been excellent so far in 2020, offering some respite from the slumping Barclays share price.

In its Q2 numbers investment banking revenue improved by £6.9bn, up 31% from the previous year, with Fixed Income (FICC) seeing an 83% improvement on the same period last year, with a 31% rise in H1 profit of £695m. Investors will be hoping for a similar uplift for this quarter as we look towards what is likely to be a challenging Q4, as the weather gets colder and economic activity becomes more subdued.  

Succession not imminent

Reports in the Telegraph this week suggested that Jes Staley, the American chief executive of Barclays, is set to remain in situ for the next two years, despite speculation that the bank was under pressure to replace him.

Barclays announce their Q3 results on Friday at 7am. What will the latest numbers mean for the Barclays share price? Read our Barclays Q3 results analysis here