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2016 in review: Barclays plc

Image: Barclays. Fair use.

I owned Barclays (LSE: BARC) shares just before the banking crisis, and as soon as it became clear something had fundamentally gone wrong with the sector I sold out — I took a loss, but saved myself from a much bigger one. I’ve pondered getting back in a few times since then, but I’ve always held back.

We’re now at the end of 2016, with the bailout of Lloyds Banking Group and TSB having helped restore some semblance of normality, and new liquidity requirements coupled with regular stress tests making the banks safer and more resistant to an economic downturn than they’ve been in decades. Happy days? Not a bit of it.

EU troubles, oil price crisis, stumbling world economies, PPI mis-selling, and fines for all sorts of nefarious activities — all have contributed to keeping banks firmly in the pariah category of public institutions. And shares in Barclays, which would once have been considered among the noblest and safest of investments, have lost two-thirds of their value in 10 years.

Brexit shock

The latest crisis to hit Barclays was the shock decision of the UK to leave the EU, and the share price plummeted by a massive 33% in the days following the vote, hitting a 12-month low of 121p on 27 June. But that was one of the clearest panic-driven overreactions I’ve seen for some time, and anyone who bought in when the rest of the world was selling has seen a 78% profit in a bit less than six months!

Barclays has reacted to this year’s crises more decisively than its competitors, and is refocusing and restructuring itself to become “a simplified transatlantic, consumer, corporate and investment bank,” in the words of chief executive Jes Staley, speaking at Q3 time in October.

That includes slashing this year’s dividend to retain capital for the restructuring, while Lloyds is still offering 5%. The 3p per share expected from Barclays this year and next would provide a yield of only 1.3% on the current 227p share price. But that would be more than four times covered by forecast 2016 earnings, with nearly seven times cover by 2017 if the mooted 50% rise in earnings should come to pass.

Barclays’ key presence in the US will have partly led the recent share price pick-up, offering shielding from Brexit in a way that UK-only banks can only dream of. And the election of Donald Trump as America’s new president has raised hopes for an economic stimulus in general and a banking stimulus in particular.

Going forward

What effect is that likely to have in the coming year? I’ll leave that for my next look, which will focus on the prospects that 2017 could bring for Barclays, but for now I’ll just caution over emotional reaction to short-term events. Whatever has happened this year and whatever might happen next, the value of Barclays shares depends on the long-term nature of the business — and the EU and Trump effects on the share price will surely disappear as tiny blips on the long-term price chart.

As it stands, Barclays shares are on a P/E of 11 based on 2017 forecasts, and the bank easily passed the latest BoE stress tests. In my view, Barclays actions this year should be a launch pad to a much better decade ahead than the one left behind.

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Alan Oscroft owns shares of Lloyds Banking Group. 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.