Allegations of money laundering have rocked the banking world this week. Leaked documents from the US Financial Crimes Enforcement Network (FinCEN) reveal details of an investigation into $2tn of transactions. The papers, which suggest some of the world’s top banks have facilitated criminal cash transfers, name Barclays (LSE: BARC) among the suspects. The Barclays share price has fallen a relatively modest 4.3% since Friday’s close, mind, and has not suffered as badly as HSBC in 2020.
Despite the shock, the Barclays price is still higher than its 52-week low. That was set in the early days of the Covid-19 crisis, and it suggests something to me. I think these revelations would normally send the banking sector reeling. But the lack of serious share price punishment makes me think banking investors have reached such a stage of pessimism that nothing seems that bad now.
I see another mitigating factor too. The whole FTSE 100 has wobbled a bit this week on the back of renewed lockdown fears. It’s only a drop of 2.5%, but it’s enough to account for more than half of Barclays’ fall on its own. But the Barclays share price has still lost 50% of its value in 2020.
Barclays share price slump
Over the past five years, Barclays is down 63%, while the Footsie has dipped only 5%. Even before the virus devastation, we had the looming Brexit calamity. And the government’s potentially catastrophic trade deal policy is surely only going to make things worse for the UK’s banks.
What else can go wrong for the Barclays share price? I’m tempted to think not a lot. Saying that, I’ve had similar thoughts about the financial sector for a number of years now. And then something else keeps finding a way of going wrong.
But the biggest concern really does seem to be the pandemic. And the effect it will have on the UK’s businesses, and Barclays’ loans. But unlike banks focused on UK retail banking, Barclays has its investment banking arm to give it some leeway. In the aftermath of the banking crisis, the risks and excesses of investment banking turned that aspect of the business into a pariah for a number of financial institutions. But Barclays has stuck with it, and it could amount to something of a life saver now.
Superior recovery prospects?
Analysts expect the full year to result in a 70% fall in earnings per share for Barclays. But they’re predicting a far bigger rebound in 2021 than for the rest of the sector. If these estimates are close to accurate, we’d see the Barclays share price on a forward price-to-earnings of only around 8 for next year.
A lot will depend on the resumption of dividends, and I’m wary of expecting anything substantial just yet. But on the whole, I’m seeing decent long-term upside potential in Barclays. We could still have an erratic year or so ahead of us, but I’m bullish about the three- to five-year outlook.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. 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.