Investors using Hargreaves Lansdown’s platform have been selling Lloyds shares in recent days. Curiously, at the same time, demand for FTSE 100 banking rival Barclays’ (LSE: BARC) shares has heated up.
Latest data shows that Barclays accounted for 3% of all buy orders via Hargreaves Lansdown in the past week. This puts the blue-chip stock a respectable seventh on the list of most popular stocks.
At the same time, the FTSE bank accounted for 0.68% of total sell orders. Should I join the rush among Hargreaves Lansdown investors and pile in today?
Value for money
As a disciple of value investing, I find Barclays’ share price pretty attractive on paper. City analysts think the bank’s earnings will fall 16% in 2022. However, this leaves it trading on a forward price-to-earnings (P/E) ratio of just 4.6 times.
I’m also a fan of Barclays’ 5% dividend yield. This beats the FTSE 100 average by almost a full percentage point.
Other reasons to buy Barclays
As a potential investor there are other more fundamental reasons I like the bank. Unlike Lloyds and NatWest, it has overseas exposure — in this case operations in the US — which could boost long-term earnings and offset potentially weak growth in the UK.
I also think Barclays’ investment bank could deliver exceptional profits when financial markets eventually rebound.
Bad loans to balloon?
That said, right now, the bank offers far more risk than I’m prepared to accept. The Barclays share price has fallen 25% so far in 2022 as earnings worries have gathered pace. I think it could continue to decline as the UK economy rapidly cools.
The business set aside £341m for bad loan losses during the first half. More hefty impairment charges could be coming down the pipe — possibly as soon as 26 October when third-quarter financials are due — while revenues are also in danger of slumping.
Taxing times
The possibility of a windfall tax being slapped on the banks is another threat to Barclays’ profitability. The Financial Times says that new chancellor Jeremy Hunt is considering taxing the banks to fill the government’s financial black hole.
Higher interest rates have boosted the banks’ bottom lines in 2022. Consequently, Hunt is considering tapping this bonanza by raising corporation tax to 33% on these businesses, according to reports.
Big challenges
Finally, as a long-term investor I’m concerned about the threat posed to Barclays from the growing list of challenger and digital banks.
Established operators are having to invest a fortune to offer the same dynamic service of digital-led newbies. Furthermore, these online-focussed banks have lower costs which gives them the financial firepower to offer ultra-attractive products.
It’s true that Barclays shares offer great value on paper. But this is a fair reflection of the colossal risks the bank faces in the near term and beyond. I’d rather buy other cheap UK shares right now.
