What You Were Buying Last Week: Barclays PLC

One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful“. Or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.

What went wrong? How much time do you have?

The past year hasn’t been good for Barclays (LSE: BARC) (NYSE: BCS.US) — the bank’s share price is down over 24% since July 2013, compared to a 7.5% rise in the FTSE 100.  Yet it was only a few years ago, following the global economic crisis, that Barclays was seen as a relatively safe bet — at least compared to other major banks. It declined a UK government bail-out and continued to pay a dividend.

So what went wrong?  And what might now have convinced enough people to put the bank into the number one position in our latest Top Ten Buys list*?

What went wrong was a series of more-than-unfortunate events. In 2009 Barclays was accused of international money-laundering, by providing an account for the son of the Equatorial Guinean President, who stands accused of siphoning off government funds. Worse, in 2010 the Wall Street Journal described how Barclays, together with other banks, helped the Iranian government and other organisations circumvent US laws prohibiting financial transactions with certain countries .  

Then Barclays was involved in the massive Libor (London Interbank Offered Rate) scandal in 2012, when it was discovered that banks were falsely inflating or deflating their rates, either to make more profit from trades, or to make themselves look more creditworthy than they were. Other scandals the bank has been implicated in include manipulation of the US electricity market in 2008 and manipulation of the price of gold in 2012…

As if all that weren’t enough, the most recent slump in Barclay’s share price followed the filing of a law-suit against the bank by the state of New York, alleging that Barclay’s has deceived investors about activities in its unregulated “dark pool” trading system.

Basically, Barclay’s reputation has been shredded, and its share price currently reflects that.

Can things only get better?

It’s true that under Antony Jenkins (CEO since August 2012) Barclays has been trying to put its house in order, and the dramatic scaling back of its investment banking operations should help reduce Barclay’s exposure to risky business and allow it to focus on retail banking. Add to that the profitability of Barclaycard — it was the second largest contributor to the group’s pre-tax in 2013 — and the geographic diversification provided by its African operations, and there’s a strong sense that Barclays is starting to get things right.

So perhaps last week’s buyers felt that things really can’t get much worse now. But only if they bought after last Thursday’s news of the fraud lawsuit filed by the New York attorney general, of course. Anybody thinking that on Wednesday afternoon was in for a very rude awakening. 

The case for regarding Barclays as a recovery play, rests on a number of assumptions — eg, that there are no more scandals left to be uncovered (and, indeed, that Barclays isn’t still involved in anything that could become one), that it can maintain (and grow) its dividend, that it can maintain an adequate core tier one capital ratio, and that Barclays’ recent assessment of its own net tangible assets (which it put at 284p per share — a premium of 32% over its share price of 215p as I write) is actually correct. If any of those proves mistaken, a real recovery could be some way off.

Of course, no matter what some people were doing last week, only you can decide if Barclays is a better place to invest your money right now than just putting it on a random horse in the 3 o’clock at Catterick…

However, placing a valuation on banks is always tricky, so to help you conduct your own analysis, our experts here at The Motley Fool have put together a special report entitled "The Motley Fool's Guide To Banking".

This exclusive wealth report provides six key 'City insider' valuation metrics for each bank traded in London. That's right: it's not just limited to Barclays -- the report gives a rundown of the whole industry.

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Jon doesn't owns shares in Barclays.

* based on aggregate data from The Motley Fool ShareDealing Service.