Barclays (LSE:BARC) shares have risen an incredible 45% over the last year. But is the tide starting to turn? Recent price action suggests it might, with the FTSE 100 bank slumping 10% in value since the start of 2026.
Here are three reasons why Barclays’ share price could slump in May.
1. War worries
Barclays’ recent plunge reflects the start of the Iran war. The consequences on inflation and economic growth could be significant, and are still being calculated. However, the conflict is likely to be a significant net negative for retail banks.
High street rival Lloyds has booked a £151m impairment charge due to the “[deteriorating] economic outlook as a result of the Middle East conflict“, it said last week (29 April). It predicted the UK economy will grow just 0.5% in 2026, worse than the 0.8% the International Monetary Fund (IMF) tipped two weeks earlier.
In this climate, Barclays could endure a sharp rise in bad loans. It might also see loan demand slow to a crawl or even reverse, putting profits under further strain. Large impairment charges like those taken by Lloyds could be possible in the months ahead.
The good news is Barclays has considerable exposure to the US to offset trouble at home. And growth there is accelerating, to 2% in Q1 versus 0.5% during Q4 last year. But can US GDP keep up the pace as the Iran war rolls on? I’m not so sure.
2. Investment bank struggles
Unlike Lloyds, Barclays has a sizeable investment bank it can fall back on if its retail operations struggle. The high-margin fees it receives can support income and cash flows. Trading activity can also pick up during periods of financial market volatility.
However, conditions here overall could deteriorate as the broader economy struggles. Risks include:
- Reduced trading volumes as risk aversion grows.
- Higher default risk in corporate lending.
- Stock market weakness, reducing assets under management (AUM) and with them fee income.
- Slowing merger and acquisition (M&A) activity and fewer IPOs, further damaging advisory fees.
3. Too expensive?
In my view, there’s a huge disconnect between the scale of these threats and Barclays’ current valuation. At 431.5p, the bank’s price-to-earnings (P/E) ratio is 9 times, above the long-term average of roughly 7. And this raises the chances of a price correction.
That P/E’s not outrageously high, but with risks rising, any premium could be increasingly hard to justify. And especially when you throw in other massive dangers facing the bank today, like the growing popularity of challenger banks and a prolonged housing market downturn.
On the plus side, rising inflation could offer some upside for the company. Why? When interest rates are hiked to control price rises, banks’ net interest margins (NIMs) receive a big boost. But on balance, things could still get a lot tougher for Barclays and its shares. I’d rather find other FTSE 100 shares to buy.
