Danger ahead! Will the Barclays share price fall off a cliff in 2019?

Royston Wild considers whether Barclays plc (LON: BARC) could plummet again in 2019.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The waves of risk-aversion that smashed financial markets in October caused barely a flicker at Barclays (LSE: BARC).

I predicted that it would only be a matter of time before the FTSE 100 bank resumed its long-running downtrend, though, and so it has come to pass. In rough November trading, Barclays has plunged again and it recently closed at its cheapest since the summer of 2016, a time when the British electorate’s decision to exit the European Union in that now-infamous referendum put investors in a state of panic.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

There’s a certain symmetry to this recent share price action, what with the recent Parliamentary deadlock over how to proceed with Brexit causing speculation over a no-deal departure to hit fever pitch. Barclays’ share price has lost a whopping 25% of its value so far in 2018, and I foresee another year of contraction in 2019.

Brexit bothers

Let’s deal with the Brexit-shaped elephant in the room first of all. It’s an issue that I’ve drawn attention to time and again as the UK’s painful exit from the EU evolves, and government analyses on Wednesday detailing the economic impact of the transition show how conditions in Barclays’ key market will suffer however Brexit is executed.

They showed that if the UK’s exit fell along the lines of Theresa May’s current deal with Brussels, domestic GDP growth would take a hit to the tune of 3.9% by fiscal 2035/36. But that’s nothing — an increasingly-possible no-deal scenario would whack the economy by an eye-watering 9.3%.

Clearly, the long-term picture for Barclays is a worrying one, and it threatens a spike in bad loan impairments and a possible collapse in retail revenues. And the outlook for the nearer term promises to be even more troublesome, particularly if the UK lurches into a recession.

Right now, City analysts are forecasting a 4% earnings rise for the bank in 2019. This is in serious danger of getting hacked down however, so I’m not tempted to buy in, even though Barclays subsequently trades on a dirt-cheap forward P/E ratio of 7.6 times.

Short of cash

Those long-running concerns over the balance sheet have come into focus again as investors have considered the potential impact of Brexit on its operations. And recent stress testing from the European Banking Authority has worsened the tension, a study which showed that the Footsie firm, with a CET1 ratio of 7.3% under an ‘adverse’ scenario, is one of the continent’s worst-capitalised banks.

It passed the Bank of England’s own tests on Wednesday, but under these forecasts its capital ratio, of 6.9%, was even worse. This is particularly problematic as PPI-related claims at Britain’s banks build ahead of next summer’s claims deadline. In the current climate  I believe it’s possible that Barclays could struggle to meet one or both of the City’s dividend projections of 6.6p and 8p per share for 2018 and 2019 respectively, figures that yield 4.7% and 4.8% for 2019.

All things considered, Barclays simply carries too much risk at the current time, and there remain plenty of reasons to predict that its share price will suffer further in 2019. It’s best to be avoided at all costs, in my opinion.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »