Barclays is a big, British, blue chip bank. Holders of Barclays shares may therefore be wondering why they are not performing as expected, despite the bank declaring profits that were up 31% for Q3? For starters, that was underneath analysts’ Barclays share price forecasts – they expected more from the bank.
Profits from Barclays’ investment banking arm were down after a tough quarter for Barclays’ markets division – that’s an 18% drop, and investment banking is the reason many shareholders were in Barclays shares in the first place and why many are now offloading Barclays shares and looking elsewhere.
Not another regulatory inquiry…
Let’s not also ignore the fact that Jes Staley, the bank’s CEO, is under a lot of scrutiny for trying to find a whistleblower who apparently accused him of hiring a buddy out of JP Morgan because he was, well, Staley’s pal. While the UK Financial Conduct Authority (FCA) might take a dim view about this level of nepotism, it takes an even dimmer view of senior executives launching a witch hunt for whistleblowers.
Staley has already had his wrist slapped for this, but it is enough to see him – and the bank – under yet another investigation from both the FCA and the Prudential Regulatory Authority. Shareholders at Barclays don’t like regulatory investigations, which frequently end up with hefty fines.
If Staley is doing anything sensible at Barclays, it is setting aside Barclays’ UK banking division into a separate unit from its investment banking division. We at The Armchair Trader were wearing other hats when the Great Financial Crisis blew up in 2008 and while Barclays was succesfully bailed out by friends in the Middle East, it has always made us, and regulators, nervous to see retail banking and investment banking living too closely together under the same roof.
Barclays share price forecast makes for grim reading
Barclays shares have, however, been taking a pounding since February, when they slipped from 240 to yesterday’s close of 179. This has taken some doing in a market climate where the cheap pound has been lifting many FTSE 100 stocks.
“Barclays shares trade at a bigger discount to book value than Royal Bank of Scotland, which is the market’s (not so) polite way of saying it is either not sure of the value attributed to the assets on Barclays’ balance sheet, it doesn’t like the bank’s strategy, or both,” explains Russ Mould, investment director at AJ Bell. “The ongoing investigation in the USA into the alleged mis-selling of mortgage-backed securities does not help here, as this could lead to a substantial fine, while Barclays still has reputational issues with which to deal, in light of the bungled whistle-blowing investigation and the 2019 court case which will see former senior Barclays executives in the dock to answer allegations of fraud relating to the 2008 Qatar-backed fund raising.”
Mould accepts that the Barclays share price is not behaving like that of its peers, suggesting that “something isn’t right somewhere in the bank.”
Class action lawsuit
If we’re discussing legal worries for Barclays, we should also briefly touch on a class action lawsuit it is facing in the US over a so-called ‘dark pool’ trading platform. The latest decision in the US courts will allow a group of investors to sue Barclays collectively for mis-leading them over its Liquidity Cross dark pool, which allowed traders to trade shares in the market before other investors could bet against them. In this case, the investors found that Liquidity Cross, or LX, was not as safe as they thought.
The Armchair Trader says:
The technical analysis for the Barclays share price makes for frightening observations if you are still holding them. Both the 20 and 50 day Moving Averages are indicative of further southward price moves and the MACD is also supportive of this. Volume-wise, the poor results from investment banking saw a lot of investors heading for the door last month. Barclays shareholders should not undersestimate just how much negative sentiment surrounds the bank at the moment.
Our Barclays share price forecast? Downward, sadly. If you have not sold Barclays yet, why not? The bank itself might have some small smidgin of a silver lining in the rise of UK interest rates, which might create some opportunity for profits, but really, there are other UK banks in the FTSE that will make more money from this. A lot of savvy players were in Barclays for the investment banking margins, and right now they have gone elsewhere. There is still more bad news to come, we are sure of it.
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