Should Barclays PLC Be Broken Up?

Barclays PLC (LON:BARC) could be a value play.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It all started so well for Antony Jenkins when he was appointed CEO of Barclays (LSE: BARC) (NYSE: BCS.US) in August 2012. Elevated from running the retail and commercial banking division and dubbed ‘Saint Antony’, Mr Jenkins promised to clean up Barclays’ ethics, rein in its investment bank and make Barclays the ‘Go-To’ bank.

It’s all going so badly now, for the time being at least. A curve-ball from the Bank of England’s former Capital Taliban regime forced a rights issue, putting back Barclay’s return-on-equity targets. The investment bank’s performance has suffered from stubbornly high costs and weak markets in its crucial fixed income instruments, currencies and commodities(FICC) business. Mr Jenkins has back-tracked on bonuses, torn between professionally-promiscuous American investment bankers and puritanical Westminster politicians.

Investors have also baulked at the high cost/income ratio of the investment bank. That division is now to be ‘fundamentally overhauled’, just a year after Project Transform supposedly set the strategy for all of Barclays’ businesses. It’s beginning to raise a double-edged question: Is Mr Jenkins up to the job, or is it just impossible to run a US-heavy investment bank within a UK retail bank?

Value created

Speculation about spinning off the investment bank has been around since Mr Jenkins took over. His predecessor pulled off a remarkable coup buying Lehmans’ US business in the aftermath of the financial crash and putting it together with Barclays’ UK arm. Now might be the time to realise the marriage-value created, with a float or sale to a competitor, rather than chipping away at the combined entity.

The Financial Times reports that analysts at research house Autonomous have suggested an alternative — a partial flotation of the retail arm. After all, HSBC was said to be considering a float of its UK retail business. Regulatory changes mean Barclays must separately ring-fence both its US and its investment banking operations anyway.

What unites both sets of proposals is the logic that the sum of the parts is worth more than the whole of Barclays. Autonomous thinks a float would value the retail and corporate arms at £30bn, which is 80% of Barclays’ market cap. With investment banking earning half of the bank’s profits last year, the scope for re-rating is clear. Espirito Santo’s analysts calculate a sum-of-the-parts valuation of 356p against a 240p actual share price.

Patience rewarded?

Barclays’ share price is 15% below tangible book value, a remarkable discount in a recovering economy and with the big risks of the financial sector in the past. The bank has become a value play and, like all value plays, there needs to be a catalyst to realise the value. That might be a change of structure, or it might be a change of management. But one thing value investors need in spades is patience.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

 Tony owns shares in Barclays and HSBC.

 

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »