Buyer Beware! What You Need To Know Before Buying Barclays PLC

Royston Wild look at some of the pitfalls investors need to be aware of over at Barclays PLC (LON: BARC).

| 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.

Today I am highlighting the main issues that look set to trouble Barclays (LSE: BARC).

Misconduct mayhem

A persistent problem for Barclays in recent years has been the scale of financial penalties imposed on it, for a wide range of misdeeds.

The bank has been forced to shell out a fortune in fines related to the fixing of currency and Libor markets, for example, and more recently swallowed a $70m fine related to dodgy operations across its ‘dark pool’ trading platform.

But the saga is far from over, with Barclays warning this month that its operations across the US, Asia and South Africa are under investigation for a litany of further issues.

Of course the PPI problem, in particular, is a major drain on Barclays, the bank having stashed away a further £1.45bn during the fourth quarter alone to cover claims. And I expect total provisions so far of £7.4bn to keep rising as the FCA’s proposed claims deadline in 2018 comes into view.

Dividend disappoints

The impact of these colossal costs has forced Barclays to slash the dividend through to the close of 2017. The bank expects to pay 3p per share to shareholders during this period, down from 6.5p in each of the past four years.

Consequently Barclays boasts a yield of just 1.8%, falling well short of many of its rivals — Lloyds and HSBC offer yields of 5.9% and 7.9% respectively, for example.

Restructuring rattles

News of fresh restructuring has also rattled investor nerves recently, the bank announcing that it would be cut in two between Barclays UK and Barclays Corporate and International.

Although required under ‘ringfencing’ rules, the move naturally raises fears of further colossal costs, not to mention other transitory problems as the changes kick in.

On top of this, many investors are concerned by Barclays’s decision to drastically reduce its operations across lucrative emerging markets. The bank is preparing to hive-off its stake in Barclays Africa Group, giving truth to the rumours of recent months, and follows news that Barclays is pulling its Investment Bank out of several territories in Asia.

So is Barclays a ‘buy’?

But while these issues all merit serious attention, I believe there are still plenty of reasons to get excited about Barclays.

The company’s ongoing bid to slash costs saw operating expenses fall 6% last year, to just under £17bn, and costs should continue to fall thanks to improving digitalisation across the business and the steady stream of branch closures.

Meanwhile, Barclays’ renewed focus on the relatively-stable UK and US economies will come as huge relief for risk-averse investors. And while a reduction in its developing market footprint undermines the firm’s long-term earnings potential to some extent, a seemingly-sensible approach to revamping its Investment Bank could still deliver stunning returns in the years ahead.

The City expects the business to report an 11% earnings advance in 2016 alone, producing an ultra-low P/E rating of 8.7 times. To me, this suggests that the risks facing Barclays are currently baked into the price, leaving plenty of upside for long-term investors to enjoy.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »