Barclays (LSE: BARC) reported bumper profits for 2021, recording a pre-tax figure of £8.4bn. It’s a bank with diversified business interests, including domestic retail operations, international credit and payments systems, and investment banking arms. It’s a recipe for a strong Barclays share price, right? Well, no.
Despite Barclays posting the kind of results that could turn other banks green with envy, the shares are down 15% since their mid-January highs. We’ve seen a gain of 11% over the past 12 months, but that’s only in line with the FTSE 100. And it’s worth remembering that the index average includes some big losers, like IAG (down 23% in 12 months), Fresnillo (down 25%), and Flutter (down 28%). So why is a profitable bank out of favour? And is the Barclays share price set for a 2022 resurgence?
Uncertain outlook
The departure of popular CEO Jes Staley, who left in November in the midst of a probe into his relationship with Jeffrey Epstein, can’t have helped. I’ve seen several commentators describing his successor, CS Venkatakrishnan, as boring. But they go on to suggest that boring is exactly what the Barclays share price needs now. Still, I reckon it could take some time to see how the relationship between big investors and the new boss develops.
More than that, though, we’re in a time of global crises. Economies are heading out of the pandemic in a shaky state. UK growth might have rebounded to 7.5% in 2021. But that doesn’t compensate for 2020’s shrinkage, so I think it’s premature to speak of sustained growth just yet. And then there’s the Russian invasion of Ukraine, which pushed oil above $100 per barrel. On top of already escalating energy prices, that could put a serious crimp in our medium-term economic outlook. And whatever hurts the economy hurts the banks.
Why am I bullish?
So what makes me feel positive about the Barclays share price now? Firstly, despite a period of near-zero interest rates, Barclays managed to keep its profits healthy. Even in 2020, the bank recorded profits of £3.1bn, which is in part thanks to Barclays’ diversified businesses. But I can’t help wondering what difference rising interest rates might make in 2022. I wouldn’t be surprised if that could add a couple of billion to the bottom line.
Against that, 2021 performance was boosted by the release of £700m of cash set aside to cover bad loan risk. There’s still a fair chunk of such reserves left, and hopefully more of that will be released. But we probably won’t know the long-term impact of bad-debt risk for a while yet.
Barclays share price too low?
I do think we need to hold back from getting too excited about the UK’s economic recovery. But while I say that, debit and credit spend in January 2022 did exceed pre-pandemic levels of January 2020. And that has got to be a good sign.
On the latest earnings and the Barclays share price at the time of writing, we’re looking at a P/E of only five. Despite the clear economic risks, that looks too cheap to me. Barclays is at the top of my own FTSE 100 buy list.