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Why the Barclays share price rose 9% in September

During September the Barclays share price rose more than 9%, outperforming both the FTSE 100 and the financial services sector. Barclays opened the month at 137.54p and ended September at 150.40p, a rise of 9.35%.

Barclays is one of five FTSE 100 banks, along with HSBC, Lloyds, The Royal Bank of Scotland and Standard Chartered. All five saw market share gains in September. HSBC was up 6.5%, Lloyds up 8.5%, RBS up 12%, and Standard Chartered rose 8%. This made up for the falls they each experienced in August.

Temporary progress in US-China trade talks drove the banking sector up on 13 September, with Barclays reaching a high point of 157.3p. Share prices in the banking sector are closely linked to politics, particularly when it comes to topics of trade. That’s why Brexit is forever casting its shadow on the banking stocks and if a no-deal Brexit goes through, then this could again cause the Barclays share price to fall further.

Another reason the Barclays share price increased in September was the confidence shielding its dividend, which was previously thought to be at threat of a cut. The realisation that this was safe (for now) helped boost the share price. 

PPI shadow

In 2018 Barclays settled claims that it mis-sold sub-prime loans prior to the financial crisis. This £1.4bn settlement was less than expected and so preempted a plan to buy back shares, which would have been the first time the bank had done this in over 20 years. 

This £1bn share buyback plan is in place for next year, but there are now worries this may be partially scuppered by the pain of payment protection insurance (PPI). The ongoing PPI refund debacle is still not over and Barclays has said it now expects its PPI compensation bill to be significantly greater than previously expected or accounted for.

This resulted in concerns that Barclays will have to cut its share buyback plan in half to make provisions for the PPI refunds it owes. At the end of June, the 329-year-old bank predicted PPI provision of £360m. This has now been raised to between £1.2bn and £1.6bn.

The overall cost to the banking industry of PPI refunds now exceeds £50bn.

Targets on track

After the 2008 financial crisis, a reformed set of international standards was created to review and monitor the capital adequacy of banks. Part of that is Common Equity Tier 1 (CET1), which is a precautionary way to protect the economy from another financial crisis. Barclays management says it is on target to meet its CET1 ratio goal of 13% for this year.

It has a trailing price-to-earnings ratio (P/E) of 8 times, which in normal circumstances would seem like a bargain, but this is not new for Barclays and even a low P/E hasn’t stopped the stock from falling in the past.  

There are worries the dividend yield could be impacted if a recession rears its ugly head, or political tensions escalate. As far as banks go, Barclays has been performing better than Lloyds, but I see the sector as extremely vulnerable right now and therefore consider it risky for new investors. 

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.