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It’s been a bumpy year for Barclays (LSE: BARC) shares, which have been rattled by troubles in the US and Europe.
The collapse of Silicon Valley Bank and Credit Suisse inevitably had investors glancing nervously at the FTSE 100 banks, too. Their concern focused largely on Barclays because of its investment banking operations.
Investment banking risk fears
Rivals Lloyds Banking Group and NatWest Group largely pulled out of investment banking after the global financial crisis, to focus on UK personal, private, and business banking.
Barclays stuck doggedly to its investment banking arm, although it trimmed its less profitable Asian operations to focus on the US and UK. These remain controversial, though, with Barclays falling foul of US regulators on a string of occasions. Most recently, it incurred a $361m Securities and Exchange Commission fine for breaching limits on complex financial product sales.
This contributed to a 14% drop in 2022 profits, made worse by a drop in investment banking fees during last year’s tough market conditions.
Barclays also saw a rise in debt impairment provisions and although it still posted a pre-tax profit of £7bn in 2022, that was down from £8.2bn in 2021.
A decade ago, Barclays shares traded at around 275p. At the time of writing this article, they trade at 147p, a drop of 47% in 10 years. They’re down 4.37% over 12 months, but what about 2023?
Barclays started the year trading at 163.6p, about 16p higher than today. If I had invested £10,000 then, I would have picked up 6,012 shares, which today would be worth £8,951. So I would have lost £1,049, just over 10% of my initial stake.
By comparison, NatWest shares have dipped just 3% year to date, while Lloyds shares have climbed 1.38%.
Ready for a rebound?
Markets have fought back in recent days, as hopes grow that regulators have successfully prevented contagion. We’ll see. Hidden nasties could still lurk. Barclays has jumped 6.5% in the last week, as investors spot an opportunity. I’m also tempted.
Barclays is now cheaper than Lloyds and NatWest. It has a low price-to-earnings (P/E) valuation of just 4.7, while its price-to-book ratio is just 0.3. The current yield is 5%, covered a healthy 4.2 times by earnings. Its forecast yield is an even juicier 6.4%, and that’s still covered 3.7 times by earnings.
Lloyds trades at 6.45 times earnings and yields 5.02%, so there’s not much between them based on those metrics. NatWest trades at 7.27 times earnings and yields 5.23%. It also looks attractively priced, although not quite as attractive as Barclays.
Buying Barclays shares does involve a bit of risk. There is no guarantee that the banking crisis is over, whatever soothing words we may hear. The company’s shares may look cheap today but investors have been saying that for the last decade, during which time they’ve fallen by almost half.
Yet Barclays has a strong capital base and a healthy Common Equity Tier ratio of 13.9%, and rewards shareholders with a progressive dividend policy and regular buybacks. I recently bought Lloyds, but if I had any spare money to invest in FTSE 100 banking shares today, Barclays would be top of my shopping list.
