Today I am highlighting what you need to know before investing in Barclays (LSE: BARC) (NYSE: BCS.US).
‘BTL’ shake-up threatens lending levels
While Barclays’ high-street operations have been enjoying the fruits of the UK economic recovery, new mortgage lending restrictions from the European Union could severely hamper buy-to-let mortgage growth in coming years.
Under the EU Mortgage Credit Directive, Brussels is mulling the introduction of new affordability tests which could see the number of ‘accidental landlords’ — such as those who rent out their property after failing to find a buyer — being refused a loan or having to fork out more to secure financing. The rules are due to come into effect in March 2016.
With around a fifth of all buy-to-let mortgages falling into this category, Barclays and its fellow lenders could be forced to endure a severe revenues hit as a result of this legislation.
Regulators running out of patience
Barclays, like the rest of the global banking sector, continues to be bashed by claims of previous misconduct and which threatens to keep financial penalties ticking higher.
The latest legal embarrassment for the company came late last month when the Financial Conduct Authority (FCA) fined Barclays £37.7m for failing to separate clients’ money from its own between November 2007 and January 2012. The assets in question totalled a colossal £16.5bn.
The fine is the largest imposed by the FCA or its predecessor, the Financial Services Authority, for risking customers’ cash through client asset breaches and indicates a growing impatience from regulators over the extent of banks’ legacy issues. Indeed, the penalty dwarves the £1.1m Barclays was forced to swallow for a similar offence back in 2011.
The bank was also hit with a $15m fine on the same day by the US Securities and Exchange Commission (SEC) for failing to introduce adequate internal compliance systems when it purchased Lehman Brothers’ advisory business in September 2008. As well, the company is also being hauled over the coals in a New York courtroom concerning allegations that it gave high-frequency dealers an advantage when transacting business via its ‘dark pool’ trading platform.
Elsewhere, Barclays is also facing a seemingly never-ending stream of claims related to the mis-selling of payment protection insurance (PPI) as well as interest rate hedging products in previous years.
Given the scale of the bank’s previous misconduct, which also includes fixing the gold price and manipulating Libor and Euribor benchmarks, investors should be braced for the possible emergence of other legacy issues and implications for the profits column.
