What’s better than cheap bank shares? Why, even cheaper bank shares, of course. I think the Barclays (LSE: BARC) share price might just fit the bill right now.
It’s all down to the latest mini bank crisis from over in the US. Pah, we’ve had a real one here, and our banks made it through.
Well, only just. But I don’t see any global bank crunch this time round.
That didn’t stop a Barclays share price fall, though. The price has lost 25% in the past few weeks. And it’s still down 30% over five years.
Bank scare
The latest scare has hit Barclays shares more than Lloyds Banking Group. But I’d expect that, really.
Lloyds came out of the 2007-08 banking crisis by turning to the UK retail market. But Barclays kept up its interest in global investment banking.
As a result, it could face more pain from the fallout of any possible US banking crunch.
But there are two key reasons why I think Barclays should prove resilient. And why it might even be the FTSE 100‘s best buy right now.
For me, it all comes down to liquidity and valuation.
Liquidity
A bank’s Common Equity Tier 1 (CET1) ratio shows its core capital reserves, compared to total risk-weighted assets. In essence, it gives us a clue of how much freely available capital a bank has to deal with any crises.
In 2022, Barclays achieved a CET1 of 13.9%. That’s after all capital returns, including share buybacks.
It all looks strong to me. And the bank has easily passed all of the Bank of England’s stress tests in the past few years.
Valuation
On the valuation front, the UK’s banks have held at around half the FTSE 100’s long-term price-to-earnings (P/E) ratio for a while.
The latest Barclays share price fall has pushed the P/E for 2023 down under five now. And over the next two years, City pundits seem to think it could drop as low as four.
The forecast dividend yield has been pushed up above 5%, and is rising.
I don’t know if the dividends will come off. And if we should face a bank squeeze this year, a cut can be one way to save cash. But I don’t see much chance of any real crisis on the way.
Economic risk
The biggest danger is the economy.
Inflation in February rose to 10.4%, and we’ve had yet another Bank of England interest rate rise. There’s a fair chance the UK could tip into recession in 2023.
That could put a crimp in Barclays’ year. And it might turn those forecasts stale pretty quick. In fact, I do think there’s a bit too much optimism in the City outlook right now.
So no, I don’t think Barclays rates as a clear no-brainer buy.
But I still think I see safety built into the current share price. It seems to me that, as usual, markets have over-reacted to the risks that banks face in 2023.
Barclays is very much on the shortlist for my next buy.
