Today I’m going to quickly review three figures for anyone thinking about investing in Barclays (LSE: BARC) (NYSE: BCS.US).
Anyone who has braved an annual report from one of the UK’s major banks should be applauded and handed a bottle of aspirin. There seems no end to the numbers bankers throw at us, but below are three I think are particularly important for investors to consider.
As of 30 June 2012, Barclays reported a tangible book value (TBV) of 332p per share.
Banks are a different beast to most businesses — they don’t really make anything. Instead, they generate income by acting as an intermediary between people with excess funds and people in need of funds.
As a result, a bank’s earning power is based almost exclusively on its assets so using a bank’s book value — and more meaningfully its tangible book value, as intangible assets like goodwill don’t directly generate profits — as a valuation tool makes sense.
Currently, Barclays is trading at 0.87 times its last reported tangible book value. However…
2. £5.8 billion
This is the amount of money Barclays is raising from equity investors (shareholders) in order to help close a £12.8 billion gap in its capital by June 2014.
As a result Barclays will be issuing approximately 3.1 billion new shares at 185p each — notice how far below book value that is — to existing shareholders. This will mean those of you already owning shares will have to pay up in order to keep your piece of the Barclays pie from shrinking.
It also means tangible will fall to something closer to 300p, which means the current price is only a 5% discount to tangible book value.
3. £450 million
That’s how much Barclays has already set aside £450 million in preparation of having to do right by borrowers who were mis-sold interest rate swap products.
The big question is: Will it be enough?
The first case in the mis-selling scandal is scheduled to be heard April 2014. If it goes against Barclays, it could open the floodgates as thousands of other borrowers try to get back at the bank.
So there you go, three numbers that I think should be considered before buying shares of Barclays.
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> Nate does not own any share mentioned in this article.