Barclays (LSE: BARC) (NYSE: BCS.US) is one of the largest companies in the FTSE 100 and many private investors have differing opinions on the bank and its prospects.
So here’s a quick rundown of the key reasons why you may wish to buy, sell or simply hold on to the company’s stock.
One of the strongest arguments for buying shares of Barclays is that things are turning around. Included in those things are the US and UK economies as well as the bank’s internal operations.
The LIBOR and PPI and interest rate swap scandals have been aired and although they aren’t all behind the bank at this point, they are being dealt with. In addition, new CEO Anthony Jenkins is on a mission to clean up the bank’s culture and pull it away from the profits-at-any-cost mentality that led to the recent troubles.
Also, with the shakeout of the UK banking industry following the financial crisis, Barclays faces less competition as a universal bank — providing both retail lending to ordinary folks and small business and investment banking to the corporate giants of the world. Both Lloyds and RBS are backing away from investment banking activities and several European competitors are doing the same (some less voluntarily than others).
Eventually interest rates and economic activity will return to normal levels, and Barclays should be able to capitalise on its position to ride that wave.
If you already hold Barclays shares then the above argument must sound familiar, and perhaps you’ve already captured some of the return-to-normal gains the shares have seen in the past 12 months — the shares are up 57% since August 2012.
But is there more to come? The bank’s shares still trade below book value so I think the argument could easily be made that there is, and Jenkins needs time to put his plans into motion (he’s only been at the helm of one of the biggest banks in the world for 12 months after all).
Also, while the current dividend yield of 2.4% isn’t overly attractive Barclays is rare among the major UK-listed banks for providing dividend income (a result of not having to have been bailed out by the government) and that dividend should rise as the bank’s fortunes do.
Of course, with the upcoming £5.8 billion rights issue, taking a ‘Hold’ position may actually require you to buy in order to maintain your share of the new, recapitalised Barclays.
Well, on top of dodgy a balance sheet that apparently — at least according the Prudential Regulation Authority (PRA) — needs £12.8 billion in additional capital funding you’ve got an industry that is renowned for its lack of transparency and short memory — it is amazing that banks somewhere in the world seem to blow up every decade or so.
In addition to the PRA, there are several other regulatory bodies that are still trying to iron out how much capital the world’s banks need and by which rules they’ll have to play.
On this note there is still a debate about ringfencing – hiving off taxpayer deposits from the riskier activities associated with investment banking – which could disrupt Barclays’s universal banking model or make its funding more expensive.
There is also the yet-to-be-settled issue with mis-sold interest rate swap products that could create a whole new series of legal — and financial — troubles for the bank.
How much each of those arguments registers with you, as well as how comfortable you are with your knowledge of Barlcays will determine if you decide to buy, hold, or sell the shares for your own portfolio. Only time will tell if your choice is the right one.
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> Nate does not own any share mentioned in this article.