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Why You Shouldn’t Fixate On The Pay At Barclays PLC

While banks such as Barclays (LSE: BARC) (NYSE: BCS.US) have been the recipients of a large amount of criticism in recent years surrounding most aspects of their business models, the one area that has attracted the most debate is the subject of pay. Indeed, most Britons think bankers are overpaid and, at least partly in response to outside pressure, Barclays has decided to replace the Chairman of its Remuneration committee.

This is being viewed as significant news by many media channels. However, for investors in the stock it makes very little difference to whether or not Barclays will perform well in future. Indeed, Barclays is already making a lot of the right moves to improve profitability and deliver gains for shareholders.

Strong Growth Prospects

Although many of its peers posted vast losses during the credit crunch, Barclays has remained profitable throughout the last five years. Certainly, the bottom line has varied somewhat, but the next two years seem to offer significant growth for shareholders. Earnings per share (EPS) are forecast to increase from 16.7p in 2013 to 33.9p in 2015. That’s more than a doubling of profits in just two years – clearly senior management at the bank are doing something right.

barclaysThis combination of extremely strong growth prospects and a track record of profitability during the darkest days of the banking crisis is unlikely to be found elsewhere (the likes of RBS and Lloyds offer strong growth prospects but made heavy losses during the recession, while HSBC and Standard Chartered remained profitable but are not forecast to grow profits at such a fast pace). It could be argued that Barclays is doing anything but overpaying its staff.

Valuation

Furthermore, Barclays also comes at a great price at current levels. For instance, its forward price to earnings (P/E) ratio is just 8.6. That’s extremely low on an absolute basis, but on a relative basis it looks even cheaper since the FTSE 100 currently trades on a P/E of 13.3. So, while the press hype up the new Remuneration Chief, the key takeaway for investors is that Barclays appears to be doing rather well and — best of all — is very, very cheap. 

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Peter owns shares in Barclays. The Motley Fool owns shares in Standard Chartered.