The Barclays (LSE:BARC) share price has outperformed many of its FTSE 100 peers over the past 12 months. It’s up 63% in that time. This rally reflects a mix of strategic execution, macroeconomic support, and investor optimism around CEO CS Venkatakrishnan’s restructuring plan. However, recent volatility — including a 5% drop post-earnings in February 2025 — highlights lingering risks tied to economic uncertainty and shifting market sentiment.
Strategic shifts and rebalancing
The bank’s turnaround hinges on its risk-weighted asset (RWA) reallocation strategy, announced in early 2024. Barclays aims to shift £30bn of capital from its historically dominant investment banking division to higher-returning consumer and corporate banking segments.
This includes expanding its UK retail footprint through the acquisition of Tesco Bank. The acquisition contributed a £600m one-time gain and boosted 2024 pre-tax profits by 25%. By 2026, the investment bank’s share of RWAs will be capped at 50%. This is down from 63% in 2023, with a focus on improving returns.
While it’s too early to say the plan is working, 2024 was a good year when pre-tax profit jumped 24% to £8.1bn. It was driven by more than 7% income growth in investment banking and +9% growth in retail banking revenue.
Management targets a return on tangible equity (RoTE) of 12% by 2026. That’s up from 10.5% in 2024, supported by cost-cutting initiatives that reduced the cost-to-income ratio to 62%.
Shareholder returns and market sentiment
Investors have been rewarded with a £1bn buyback and a 5% dividend hike. This is part of a broader pledge to return £10bn in capital by 2026. These moves, alongside improving UK economic indicators (modest growth, falling inflation), have buoyed sentiment.
However, the stock’s recent pullback reflects caution. Despite beating 2024 earnings estimates, Barclays’ 2025 guidance — including an 11% RoTE target and £7.4bn UK net interest income forecast — failed to excite a market priced for upgrades.
Macroeconomic risks and volatility
Barclays’ exposure to global markets through its investing arm, and retail banking, makes it sensitive to macroeconomic shifts. The bank recently revised its US GDP growth forecast for 2025 to 0.7% from 1.5%, citing trade policy risks and softer labour markets. It now expects two US interest rate cuts in 2025 (June and September), up from one, which could pressure investment banking revenues. Meanwhile, UK mortgage demand — boosted by rate cuts —offers a partial offset, though structural hedges (£4.2bn income in 2024) and margin pressures complicate the picture.
The bottom line
While Barclays’ strategic pivot and capital returns justify much of its rally, execution risks remain. The RWA rebalancing must navigate cyclical pressures in consumer banking and potential US recession headwinds. The average share price target is now £3.44 indicating that the stock could be undervalued by 17%. However, the lowest share price target suggests that the stock is overvalued by as much as 23%. Yet it’s worth noting that there aren’t any Sell ratings on the stock.
While I’m broadly bullish on Barclays, recent appreciation has turned this stock into a large part of my portfolio. However, despite some concerns about concentration risk, I’ll consider buying more.
