Barclays (LSE: BARC) (NYSE: BCS.US) shares have fallen by around 15% so far this year, wiping £8bn from the bank’s market capitalisation.
The year started oddly, when Barclays was forced to release various key numbers from its final results early to dampen press speculation. Things became more sinister in June, when allegations of fraud and deceptive practices were made by the New York Attorney General about Barclays’ dark pool trading venue.
The foreign exchange rigging scandal came next, and for reasons that aren’t yet clear, Barclays refused the settlement deal that was accepted by other UK banks in November, in order to negotiate a different deal for itself. This process is still ongoing, and has prolonged the uncertainty surrounding this scandal.
What about results?
Barclays’ results haven’t been too bad this year, and suggest to me that Barclays is making steady progress with its Transform plan.
Profits at Barclays’ personal and corporate banking, Barclaycard and non-core divisions have all risen, while bad debt charges have fallen and operating expenses are lower.
Barclays’ financial strength has also improved: the bank’s Common Equity Tier 1 Ratio (CET1) rose to 10.2% during the third quarter, and Barclays outperformed Royal Bank of Scotland Group and Lloyds Banking Group in this week’s Bank of England stress tests.
The fly in the ointment has been Barclays’ investment bank, which continues to perform poorly, dragging down the bank’s overall returns. However, I believe that the arrival of new chairman John McFarlane in 2015 could be the trigger for change in Barclays’ investment division: Mr McFarlane didn’t hesitate to make sweeping changes following his arrival at Aviva, and I expect the same kind of decisive action at Barclays.
Cheap valuation
Barclays’ net tangible asset value per share rose to 287p in the third quarter, meaning that the bank’s shares currently trade at a 20% discount to their tangible book value.
The bank’s shares trade on a 2015 forecast P/E of just 8.6, and offer a 2015 prospective yield of 4.2%. By any measure of value, Barclays looks cheap. Interestingly, despite its rising dividend, Barclays trades on a lower P/E than non-dividend payers Lloyds and RBS.
Positive outlook
In my view, the arrival of new chairman John McFarlane in spring 2015 should be the final element needed to complete the bank’s turnaround and restore investor confidence.
The bank’s undemanding valuation reduces the risk of holding the shares, and I believe Barclays offers compelling value, and remains a strong buy.