2026 was meant to be a good year for bank shares like Barclays (LSE: BARC). At its start, the set-up for financials was looking very promising.
It’s fair to say that things didn’t pan out as expected in Q1. Here’s a look at how much £10,000 invested in Barclays at the start of the year would be worth now.
The share price has tanked
Barclays’ shares ended 2025 at 476p. So let’s say that someone invested £10,000 at that share price. Today, that money would be worth about £8,100, because the share price has fallen around 19% to 386p (as I write Tuesday 31 March).
I’ll point out that anyone who bought shares at the start of the year would have received a small dividend of 5.6p per share. This was also paid on 31 March, offsetting the share price loss, but not by much (only around 1%).
Multiple problems in 2026
What’s gone wrong here? A number of things. For a start, the financial environment has changed dramatically. As a result of the Iran conflict and the spike in oil prices, the chances of an economic slowdown (perhaps a recession) have increased.
This has impacted a lot of stocks but banks have been hit particularly hard as they’re quite cyclical. When the economy takes a downturn, these institutions tend to see less loan growth and more loan defaults which tends to translate to lower profits.
Another issue is that Barclays had some exposure to collapsed lender Market Financial Solutions (MFS). The bank’s reportedly looking at losses of around $660m (about £500m) here.
A third issue is that digital bank Revolut has been granted a UK banking licence. This means that there’s a whole new source of competition for traditional plays like Barclays.
On top of all this, there’s AI uncertainty. Right now, many companies are laying off staff due to AI and this trend continues, so it’s possible that we could see a spike in mortgage defaults.
Can the stock bounce back?
Is there potential for a rebound in 2026? I think so.
But for the share price to head back towards 500p, I think we’d need to see:
- An end to the conflict in the Middle East (soon).
- A fall in oil prices.
- Strength in the equity markets.
- Robust levels of capital markets activity (eg IPOs).
- An easing of the stress in the private credit markets.
If one or more of these variables were to go against us, the shares could struggle.
I do think the shares are worth considering at current levels though. There’s obviously some risk but with the share price already down 19% year to date, and the stock trading at seven times forecast earnings, the risk/reward proposition looks relatively attractive to me.
