The Barclays (LSE: BARC) share price fell 5% on the morning the bank posted 2023 first-half results.
That means the shares are now down 18% in five years. And they’re trading on what looks to me like a crazy low price-to-earnings (P/E) ratio.
New buyback
Barclays launched a new share buyback at the same time, to return up to £750m of spare cash to shareholders. And that made the share price fall?
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Chief executive CS Venkatakrishnan, said: “Through our diverse sources of income, prudent risk management, and ongoing cost discipline we have again demonstrated the stability and strength of the franchise we have built over many years.”
I know CEOs say such things. But in this case, I think that’s exactly right. I reckon Barclays has hit on a nice balance of risk versus opportunity, and domestic versus international banking.
So that’s even more reason for me to scratch my head when I see the Barclays share price dip.
End of boom
It seems the drop is partly due to Barclays having lowered its net interest margin guidance. For the full year, the bank now puts it at “less than 3.2%, with a current view of around 3.15%”.
It’s all about the interest rate boom coming to an end. Well, it hasn’t yet, but inflation has finally started to soften. And it’s inevitable that the Bank of England will one day start cutting rates.
But wait, didn’t we already know that would happen? I mean, did anyone buy Barclays shares thinking high rates would be with us forever?
I’d never buy a stock just because it’s enjoying a short-term boost that I know can’t possibly last.
Impairments
As bad debts rise, Barclays had to make an impairment charge of £400m in the half. So that will have dampened the mood too.
But again, isn’t that telling us something that was plainly obvious anyway? Yes, high interest rates will push up a bank’s lending margins. But sure as eggs is eggs, they also raise the risk of bad debts.
To sum up, I’d say that exactly what we all knew was sure to happen has happened. But stock traders still seem to have been taken by suprise.
Private investors
Judging by trading volumes, the big investing firms are mainly behind day-to-day Barclays share price moves. And that’s why I think private investors with long-term goals can beat the pro traders.
We don’t need to be seen holding the top stocks each quarter. And why should we sell just because a thing we knew was sure to happen, erm, happens?
Yes, Barclays faces risk, just like the whole bank sector. And there’ll be a fair bit of uncertainty over margins and bad debts in the second half and beyond. The share price could well fall further this year.
On my buy list
But when I think of buying and holding for at least 10 years, a P/E of just five puts Barclays at the top of my list for when I next have the cash.
