Ever since I rashly sold Barclays (LSE: BARC) (NYSE: BCS.US) at £1.85 some 18 months ago, I’ve been looking for an opportunity to buy it back again. When it hit a high of £3.33 in May, I assumed my chance had long gone. But recent bad news has batted the share price down to £2.86, a drop of 14%. Is now the right time to buy a long-term stake in the bank?
When I sold Barclays, I underestimated the willingness of central bankers, especially the European Central Bank, to prop up the global credit system. I also underestimated how expertly the big banks would turn QE and other stimulus, such as the Bank of England’s Funding for Lending Scheme, to their advantage. I have paid a heavy price for my mistake, in lost growth opportunities. But with Barclays chief executive Antony Jenkins revealing an unsightly £12.8bn capital hole, those opportunities seem to be outweighed by the threats. Which, as every Fool knows, is often the perfect time to invest.
Taliban attack
Some investors avoid the banks altogether, because they won’t buy what they don’t understand. The banks’ balance sheets are simply too big, and too ugly, to get to grips with. Another concern is that they are in constant danger of a regulatory roughing-up.
It is hard to feel sorry for Barclays, but it has been shunted into this position after the Prudential Regulation Authority (PRA) tightened its leverage ratio deadlines, so that Barclays now has to hit its 3% target by June 2014, sooner than expected. Nationwide won a similar skirmish with the “capital Taliban” at the Bank of England. Barclays lost, hence the bigger-than-expected £5.8bn rights issue, plus another £2bn of convertible bonds, the fourth-biggest cash call in British banking history. It will also sell off assets.
The news has overshadowed another Barclays regulatory run-in, this time with the Financial Conduct Authority, over allegations that it only avoided a taxpayer bailout in 2008 by loaning Qatar Holdings the money it needed to buy a stake in the bank. It also faces two separate probes in the US, by the US Department of Justice and the Securities Exchange Commission. Any sanctions or penalties could spark another share price shock, or what I call a buying opportunity.
I still believe in Barclays for the long term. The UK economy needs it to play an active role in the UK and global economy, lending money freely to British businesses. So is now the time to buy it? It looks like it, with the shares down 3.5% on Monday, 6% on Tuesday and another 2% on Wednesday morning.
I suspect the PRA’s actions could prove a high regulatory watermark, sparking a backlash against the capital Taliban. New Bank of England governor Mark Carney seems likely to be more sympathetic towards Barclays than Mervyn King, reputedly a major foe. Barclays is nicely diversified, with a strong retail and investment bank offering, and the market will remember that, once the furore over the rights issue has calmed itself.
Power up
Barclays’ recent share price dip was slightly worsened by a disappointing 17% drop in adjusted pre-tax Q2 profits to £3.6bn, below analyst estimates, and the additional £1.35bn it has set aside for PPI mis-selling (running total: £3.95bn). The good news is that the rights issue should lead to an enhanced dividend in 2014, boosting the yield from its current level of 2.2%. Troubles at Barclays will be headline news for years to come. The current bash-up is a good opportunity to feed some of your money into its stock, and I’ve no doubt more will follow later.
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> Harvey doesn’t own shares in Barclays.
