Barclays share price: time to buy after this £450m fail?

The Barclays share price dropped over 2% on Monday after it revealed a £450m blunder. The shares have been sliding for months, but I see value in BARC.

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In my experience, just when a business is getting to grips with past and recent failures, it makes another howler — and down goes its share price again. This has just happened at Barclays (LSE: BARC), which on Monday owned up to a new howler costing the UK bank at least £450m (after tax). And predictably, the market’s response to this news was to send the Barclays share price sliding once again.

The Barclays share price heads south

After bouncing back strongly following the Covid-19 crisis of March 2020, the share price has tumbled since mid-January. On Monday, it closed down 3.89p (-2.3%) at 163.41p — still comfortably above its 52-week low of 142.04p.

At its 52-week high, the share price touched 219.6p on 14 January. It has since tumbled by 56.19p, diving more than a quarter (-25.6%) in roughly 10 weeks. Indeed, Barclays shares have been in decline for an extended period. They’re down 4% over five days, 5.7% over one month, 13% over six months, 9.4% over one year, and 27.4% over five years!

In short, the Barclays share price has been both a short-term and long-term lemon. But always remember that, as investors, we buy a company’s future and not its past. And despite this latest blunder, I’m fairly optimistic about Barclays’ future.

What went wrong this time?

Yesterday, Barclays admitted that a mistake at its US exchange-traded notes (ETN) division will lead to the British bank taking a £450m hit. In August 2019, Barclays registered $20.8bn of its popular VXX (volatility futures) and OIL (crude oil) ETNs for sale in the US. The bank actually issued $15.2bn more notes than this figure. These two ETNs were suspended two weeks ago, on 14 March, when Barclays first became aware of this problem. As a result, it has agreed to buy back these notes at the (higher) price at which they were issued. Barclays is reviewing the risk controls that led to this mess, while US regulators are also investigating. This might well lead to it being fined for this blunder, hence the fall in the share price on Monday.

Although this is an embarrassing gaffe for Barclays’ new chief executive CS Venkatakrishnan, it will have only a minor impact on the bank’s rock-solid balance sheet. Barclays estimates that this episode will knock 0.14 of a percentage point from its Common Equity Tier 1 (CET1) ratio. This will leave this measure of financial strength in the middle of its target range of 13% to 14%. However, Barclays decided to delay its £1bn share buyback plan (unveiled in February) until the second quarter of this year.

I’d buy Barclays today

I’ve been patiently waiting for the Barclays share price to weaken before buying into the bank, currently valued at £27.4bn. Its shares now trade on a lowly multiple below 4.5 times earnings and a chunky earnings yield of 22.4%. Their dividend yield of almost 3.7% a year is broadly in line with the wider FTSE 100‘s cash yield. This seems too cheap to me, despite the bank’s history of expensive howlers. Hence, I will shortly buy and hold Barclays shares in my family portfolio, both for their passive income and potential future growth!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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