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Why I think Barclays is a risky bet at best, even at its current low price

A drop in share price of over 23% from the highs of last year for a FTSE 100 company sounds like a good starting point to investigate if it’s a worthy investing opportunity. After all, prices can fall for many reasons, such as a broad meltdown in financial markets, sectoral challenges, or response to developments within the company. And I often find that a sharp, short-term fall in large companies’ share prices doesn’t last, with a quick rebound to follow, even if a limited one.

A rebound shouldn’t be taken for granted, however, as in the case of banking giant Barclays (LSE:BARC), which is facing plenty of issues.

Problems abound

It was recently fined by the European Commission, along with a cartel of other banks, for questionable forex market trades. This followed its poor quarterly results released last month, which showed a decline in income and a pessimistic outlook. While I think that it is unfair to judge it only on one quarter’s performance, especially since it reported profits in 2018, the fact remains that it has been inconsistent over the years.

I am very jittery about it right now, especially in the context of Brexit. A recent poll of investment management professionals by consulting firm Duff and Phelps revealed that London is no longer seen as the number one global financial centre, with New York taking its place. With over half of Barclays’ business being generated from the UK, not only is it bound to be affected by any weakness in the UK economy, the likely movement of financial services activity to other centres will impact it too.

Poor share price performance

Even ignoring the latest macro-economic headwinds, the share price performance has not been great. It has not delivered rising (or even flat) returns in a long time. Quite the contrary. The price trend line for the past five years has been a downward sloping one. Its best days were the boom years of the mid-2000s, and the price has gone nowhere close to those levels since. It has had some moderate highs, but the lows have followed quickly enough. I am not saying that I see Barclays as a definite no-go, but it is not one for the risk-averse.

Superior investing options

For a more risk-averse investor, I believe there are far better bets out there within the FTSE100 financial services universe. A case in point is HSBC, whose share price has been trending upwards over the past year. It also makes for a more compelling pick in terms of financial performance and geographical spread. I also prefer more UK-focused bank Lloyds, which has given us a more palatable performance recently and has decent prospects too. While an investor with a shorter-term horizon might profit from betting on share price ups and down, we at the Motley Fool are interested in long-term, reliable investing opportunities. And Barclays doesn’t fit that bill right now.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.