Barclays: bullish market trends but no premium valuation

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In a bull market, you will be bullish. The trader’s beliefs apply to Barclays’ Jes Staley. Given his investment banking background, he believes in the power of capital markets.

Bank lending has grown very little over the last decade. Equity and debt lenders are happy to close this gap, as the CEO of UK lenders points out. Unfortunately, these markets show little belief in the banks’ own stocks. Barclays’ rating is below that of its local peers.

Good performance in the third quarter This was rarely reversed on Thursday. Net income of £ 1.45 billion exceeded analysts’ consensus estimates by 30%. In the nine months leading up to September, after-tax revenue almost tripled. Next, they raised the Tier 1 capital ratio of common stock to just 15.4%.

Barclays Investment Banks support everything. The market and investment banks (reading high-value transactions) together make up 48% of revenue. The return on tangible assets of Barclays’ corporate and investment banking sector as a whole jumped to 17%, well above last year’s average. Everything made a difference, from the £ 1.9bn reversal of sectoral credit impairment to the liberation.

But if interest rates rise, can Barclays traders and bankers do the same? Globally, portfolio managers buy banks as higher-rate beneficiaries, according to the Bank of America. In fact, buy-side optimism about them has been highest since late 2017, just before the central bank resumed its dovish stance on interest rates.

US banks are the main beneficiaries. Andrew Coombs of Citi believes that in Europe, many investors have a disastrous memory of the last poor performance of the banking sector in 2018-19. Barclays shares have nearly tripled over the past year, overwhelming local peers and a wide range of markets. Still, its valuation is only six times future earnings, 40% below tangible book value.

Investors are wondering how long Barclays’ winning streak in investment banking will last. Staley wins the debate about the value of the integrated banking model for short-term profitability. He wins the sale with investors and encourages a complete rerating only if earnings remain strong when the capital markets are quiet.

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