Has Barclays PLC Recovered From Past Mistakes?

Barclays PLC (LON: BARC) has made mistakes but the bank is slowly recovering.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s no deBarclaysnying that Barclays (LSE: BARC) has made many mistakes over the past 24 months. Indeed, in the past 12 months alone the bank has been faced with lawsuits, fines and demands from regulators to raise more capital.

However, Barclays now seems to be making a comeback.

For example, reading through Barclays’ first half results, it would appear that the bank is making progress on many fronts. The value of risk-weighted assets is falling and profits are rising at the company’s personal and corporate banking arms. 

Making progress 

Overall, apart from Barclays’ investment banking arm, all of the bank’s major divisions made progress during the first half of the year. What’s more, at the end of July the bank reported that credit impairment charges had improved during the second quarter by 13% to £937m, thanks to an improving UK economy. Operating costs fell by 4.4% during the same period to £7.9bn.

Then there’s Barclays’ world leading Barclaycard division, which reported an 8% rise in profitability during the second quarter. Higher sales volumes sent Barclaycard’s profit upto £396m for the period.

Unfortunately, the bank did report a 10% fall in pre-tax profit overall, although this was entirely down to the investment bank’s poor performance. Barclays’ investment bank reported a 46% decline in pre-tax profits for the period. 

Still, the bank’s personal and corporate banking divisions reported a 23% hike in profits, which aligns with Barclays’ new strategy of moving away from investment banking, towards a more customer focused, high-street bank.

All in all, Barclays’ first half results revealed that the bank is moving forward, albeit slowly and things are changing. However, there’s no denying that the turnaround will take time and there are still plenty of risks ahead. 

Risks ahead 

The biggest risk facing Barclays is what can only be described as a wave of litigation. The most pessimistic City analysts reckon that this litigation could cost the bank a total of £7bn over the next few years.

But it’s not just the monetary cost that will have an effect on Barclays, the bank’s reputation is also at risk. Indeed, the dark pool scandal earlier this year, where Barclays was found to be misleading clients about the trading conditions within its dark pool, cost the bank some of its biggest clients.  

That being said, so far Barclays appears to be coping well with the litigation and negative press surrounding the company, which leads me to believe that the bank is well placed to weather the storm.

Undervalued

Even after factoring in all the headwinds facing Barclays, the bank is still trading at an undemanding valuation, offering an attractive risk/reward profile. Specifically, at present levels the bank is trading at a forward P/E of 10.4 and a 2015 P/E of 7.9, compared to the banking sector average P/E of 25.5.

So overall, based on Barclays’ low valuation and plans to return to growth, the bank looks to be an attractive investment at present levels.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »