Barclays Stock Deserves Better Than This

To look at Barclays Plc’s share price after its results Wednesday, you’d think it had had a stinker. But it didn’t,and the stock’s initial plunge of more than 10% was excessive.

Investors seem to have gotten overexcited ahead of results, driving the shares up on hopes that the UK bank would exceed elevated forecasts for revenue, profit and especially buybacks. Instead, they were served up good numbers that were nevertheless slightly below estimates and were garnished with a touch of conservatism from Barclays on capital returns.

It will buy back another ?500 million ($603 million) of stock, taking the total for 2022 to ?1 billion, but analysts were expecting an additional ?675 million to be announced. That’s not a huge difference but was enough to take the wind from Barclays’s sails.

Barclays was never among the European banks set to finish 2022 with bucketloads of excess money to hand out to shareholders, like BNP Paribas SA, UBS AG, or UniCredit SpA. However, investors are likely to thank Barclays’s executives later for being cautious with their capital.

Chief Financial Officer Anna Cross preferred the word “thoughtful” to “conservative” as a description of Barclays’s approach in an economic environment that she called “not benign.” But she is also keeping money back to fund growth. Cross expects lending markets to stay competitive, especially in the UK, and funding costs to be higher. That leads to a more cautious outlook for interest revenue growth in 2023 compared to analysts, but she also doesn’t expect a big rise in bad loans.

If the final quarter’s numbers were underwhelming versus forecasts, it’s worth looking at them in the broader context. Barclays’s net interest income grew 31% in 2022 compared with 2021, which is better than big US and European rivals to have reported so far.

Its revenue growth in bond and currency trading was stellar, up 48% for the year in dollar terms, which beat even Goldman Sachs’s 39%. It was helped by being in the right products — such as interest-rates trading — and the growth of its financing for hedge funds. This business produced its strongest revenue since at least 2014, when Barclays adopted its current reporting structure.

Its stock-trading desks lagged rivals, hurt by Barclays’s costly and embarrassing foul-up in structured notes, when it failed to file the correct paperwork with US regulators. The bank announced the co-heads of equities trading were leaving this month, but declined to say whether they were carrying the can. Dealmaking and advisory fees were down 46% for the year, but that’s marginally less bad than the average for the five big US investment banks and better than European rivals.

All in all, it was a solid year for Barclays despite the ructions in markets that troubled most large banks and its own crazy structured notes slip-up – a mistake it at least managed to clean up swiftly and efficiently.

If there’s a downside, it’s that Barclays’s targeted future returns of more than 10% on tangible equity just won’t get pulses racing or generate US-style buybacks. There’s no great restructuring story to get excited about either. Barclays looks like it’s becoming a steady performer that won’t take mad risks with shareholder funds. That might not bowl over investors, but it deserves a better valuation than its current 54% discount to forecast book value.  

More From Bloomberg Opinion:

• Barclays Shows How to Get Out of a Blunder: Paul J. Davies
• U.K. House Prices, Meet the Cost-of-Living Crisis: Stuart Trow
• Banks Play Fast and Loose With Riskiest Debt: Marcus Ashworth

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To contact the author of this story:

Paul J. Davies[email protected]

To contact the editor responsible for this story:

James Hertling[email protected]