Bankers have shown they can be many things over the past few years, but they’re generally not naïve. When Barclays (LSE: BARC) (NYSE: BCS.US) paid £290 million in 2012 to settle allegations that it attempted to manipulate Libor — the key benchmark for setting interest rates — Barclays’ management must have suspected it wasn’t the last word on the subject.
And sure enough, three former employees of Barclays have now been charged by the Serious Fraud Office (SFO) for allegedly conspiring to defraud between June 2005 and August 2007.
According the Financial Times, the three ex-Barclays bankers are the first to face charges over the alleged rigging of the US dollar-denominated Libor. Previously, both the SFO and the US Department of Justice have charged people with alleged manipulation of Yen-denominated Libor.
The FT reports that Barclays declined to comment.
Not cheerful, but cheap
The chances are these bad headlines related to Libor and other sins of the past will drag on for many months, if not years. As more details come out about the alleged manipulations, it’s possible we’ll hear further revelations of bad behaviour and lurid language from former employees of Barclays, as well as the other big banks.
It’s all a headache for Barclays’ CEO Antony Jenkins, who has repeatedly said he wants to wipe the slate clean. Every time such stories from the past resurface, they take the focus off any progress he’s making in trying to change the culture at the £42 billion bank in an effort to prevent these sorts of thing from happening again.
Of course, everything has a price — even a bank as unloved as Barclays. And on the surface, it does look cheap if Jenkins can finally stem the rot.
Should Barclays manage to hit the roughly 29p per share that analysts forecast it will earn in 2014 then, at 250p, it’s on a P/E ratio of less than 9. The dividend yield meanwhile is nearly 4%, and it’s predicted to rise to as much as 13p in 2015, which would make for a yield of over 5%.
For a global giant that still has a top-of-the-table investment banking unit in the US, massive presence on the UK high street, and the potential to grow earnings from a combination of reduced impairments and further expansion — especially in Africa — that seems cheap. And while its net asset value (NAV) per share plunged from over £4 to just 331p as of its 2013 full-year results, that’s still well above the current share price.
Considering that the NAV partly fell due to dilution from a £6 billion rights issue that theoretically made the bank much safer, it’s maybe not wishful thinking to hope the worst of such declines could be over.
Make your own mind up
Set against the apparent bargain rating of shares in Barclays are the risks of an emerging currency fixing scandal that could rival or even surpass its Libor woes (or else prove a storm in the teacup — opinion is divided) plus the clear need for management to change the culture at Barclays without killing the goose that lays the golden eggs — that giant investment bank formerly known as Barclays Capital.
