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Has Barclays PLC Lost Its Mojo?

A ‘mojo’ is described as ‘a magic charm, talisman or spell’ in the Oxford English Dictionary. While Barclays (LSE: BARC) may never have enjoyed a mythical status, it did seem to have a great deal more swagger in previous years when, under the leadership of John Varley and then Bob Diamond, it was considerably ahead of many of its banking peers in terms of profitability and efficiencies.

Today, though, Barclays seems to be rather unsure as to what exactly it wants to be. It currently has no CEO, so that doesn’t help for a start, but even under previous incumbent Antony Jenkins Barclays seemed to be unsure of how it was going to deliver improving shareholder value.

On the one hand, it has tried to become a more transparent, lower risk and more stable bank with a focus on more ‘traditional’ retail banking activities over investment banking ones. However, it is rumoured that the bank’s board felt that it was moving too far away from the highly lucrative investment banking space and so apparently lost faith in its CEO.

A new CEO will, of course, not be appointed in the near-term. Barclays seems to be happy to take its time to find the right person and, when it does, there is a hugely prosperous bank to lead. This is the bank which has delivered a far more resilient financial performance than almost all of its UK-listed major peers in recent years, with no direct government bailout being required during the credit crunch and a reasonable geographic spread of exposure protecting it against challenges in the Far East which have hurt investor sentiment in the likes of HSBC and Standard Chartered.

In fact, Barclays is expected to grow its already impressive bottom line by 36% this year and by a further 19% next year. Those are growth figures of a challenger bank, and yet investors seem unable to get excited about them. As such, Barclays trades on a rather lowly price to earnings (P/E) ratio of 10.8, which is due to fall to 9.1 next year.

Part of the reason for the market’s lack of confidence in the bank’s future could be that its own management team seems to share their nervousness. While the likes of Lloyds have pledged to ramp-up their payout ratios to a rumoured 65% – 70% of profit, Barclays is still stuck on a payout ratio of 29%. Certainly, this is set to increase in future years but, for a bank which has remained profitable throughout recent years, it hardly paints a picture of confidence in the bank’s future ability to generate a high return on capital invested.

So, while Barclays has clearly disappointed in recent years – as evidenced by its share price fall of 15% in the last five years – its shares seem to have huge unrealised potential. Its new CEO may not need to make all that many changes to the business itself, but merely give the bank’s stakeholders something to shout about. If they can achieve that then the bank’s share price could soar.

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Peter Stephens owns shares of Barclays, HSBC Holdings, Lloyds Banking Group, and Standard Chartered. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.