It’s been a rough week for the Barclays (LSE:BARC) share price. A 19% drop comes at a time when President Trump’s tariff announcements have sent shockwaves through the stock market. Some might think that Barclays shouldn’t be that impacted, given that the US isn’t its primary market for operations. Yet there are several reasons why I believe the bank could struggle going forward.
Hits to different areas
One division within Barclays is the investment bank. This area earns money by advising businesses on mergers and acquisitions and helping them raise capital via the debt and stock markets. But the recent tariffs news has created considerable business uncertainty.
If you’re a CEO considering buying a company abroad, would you really want to sign on the dotted line right now? Or would you put things on hold for a few months to see how things pan out? I know I’d be cautious about doing any big deals at the moment. If this is the wider view in the market, then the investment banking teams could see revenue fall as deals dry up.
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Barclays also has a significant retail presence, both here in the UK and in other key markets around the world. A concern here is that the everyday person on the street starts worrying about what they are reading on the news. Stories about a recession, the beginning of a global trade war, rising prices and more could spook them. As a result, they might cut back on spending, reducing transactional activity on their account. It could see demand for loans and other products fall, as people fear the worst-case scenario.
Interest rate impact
There are also rumours that central bank decision-makers around the world may have to make sharp interest rate cuts to help their respective economies. I don’t think this is unreasonable, but we’ll have to wait and see for confirmation in the coming weeks.
If it does happen, Barclays’ stock could be hit further as rate cuts would reduce the net interest margin. This margin refers to the difference between the rate it lends money versus what it pays on deposits. The lower the base rate, the smaller this margin becomes. As a result, revenue could be directly impacted by this action.
Silver linings
On the other hand, Barclays could be seen as an undervalued purchase. With the sharp price drop, the price-to-earnings (P/E) ratio’s fallen to 6.95. This is well below the fair value benchmark figure of 10 I use. Further, if interest rates around the world do dip, there could be higher demand for loans and mortgages, and the bank could see a spike in revenue from selling these products. The stock is up 21% over the past year.
Even with these factors, I’m still not convinced now’s a good time to buy the stock, so will be staying away.
