The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
I think in many ways its a good business with strong turnover. They just haven't been able to get to grips with the returns problem which destroys their margins. I think they are trying to deal with it but don't know how without losing large numbers of customers. Ultimately if they can't solve it and find much cheaper ways of dealing with returns, they will struggle to recover.
Why is it an overreaction? The results are dreadful. Even the adjusted loss, ignoring the one-offs is a staggering £89m. The only positives are the repeated assertions that things will get better.
Comonsence I don't disagree with that at all. The shorts clearly think there is money to be made in banking stocks. I just think that normal fundamentals have gone out of the window because you would normally expect buyers to be piling in at these sorts of valuations which are pretty unprecedented. Barc on a prospective PE of around 3.5 with a pretty diverse business model should be able to splash some serious cash. For a business that has been around as long as Barc, those are astonishing numbers.
Comonsence not so sure it's shorters. There is just not a strong demand for UK banks at the moment despite the price weakness . Negative sentiment around the UK and risk of political interference and that tends to hit the banks as the nearest proxy for the UK economy. Near record profitability not reflected in the share price but if it can pay out £3bn plus per year in divis and buy-backs, the share price will respond in the end and when it does, it could move quite quickly.
Although 239 probably won't be seen for a long time, the reality is that it would only require a market cap of around £37bn which, if net profits are £6bn for this year (not impossible based on first quarter) implies a PE of around 6. A general uplift in sentiment could therefore see a re-rating at some point - hopefully in my lifetime.
Reducer I would be staggered if deposits in FRC aren't protected, including the banks $30bn. It would cause panic and mayhem and a run on every small regional bank if depositors start losing their money. Would be perverse to protect SVB depositors and not FRC. I suspect the banks were 'persuaded' to put up $30bn for FRC deposits to allow the dust to settle after SVB and avoid contagion. If there had been no $30bn and the 100bn run on FRC had been known at the time of SVB I suspect it would have quickly got out of control. It is likely when this del was cooked up that the banks were given some sort of implicit protection for what they were doing - as you suggest , some sort of caveats even unwritten. They must have know it would collapse as soon as the true scale of the deposit run became public. I hope they go after the execs selling down their holdings in the weeks before the collapse whilst pretending business as usual.
Commercia agree might be a good time to top up. prospective PE now under 5 for a pretty safe well run bank with a good dividend yield. Pays a decent return while waiting for share price recovery.
If Barc was able to replicate this performance for the remainder of the year its PE would be 3.53 even after today's increase. A big if perhaps but if it can, the share price will hopefully respond positively.
Reducer, i think many, including me, have trouble accepting that the right kind of PE level for banks is more like 5 these days. I think we expected things to improve after PPI but rather oddly, despite increased earnings, things have got worse. I take the point though that none of that means things will get better or that the shares will rerate but I do think it will happen at some point which is why i am hanging on. It is though proving a very long wait.
Certainly agree about the clowns in charge. No consistency in policy and U turn after U turn on tax. Barc are still suffering in addition from the fiasco of the note issuance which cost shareholders £1.5bn and seems to have been greeted by the bank's board with barely a complacent shrug of the shoulders.
I don't think it increases it by 2.2% because of the cost of the buy-back but it certainly does increase it. I don't really understand the huge discount to US banking stocks - even the regionals have higher ratings than Barclays despite the obviously enhanced risks of failure. It is just part of a wider investor shunning of the UK I guess. Whatever ones views on Brexit, it has certainly diminished the appetite for investors of UK shares.
I agree with you apart from the 'hefty' share buy-backs. i think they are derisory and the market was expecting more which is one reason the price tanked so much after the results. Lloyds pay-outs much higher and even NWG are higher from a much lower profit base which is also partly why NWG's market cap is now significantly in excess of Barc. Once they loosen the purse strings - if they do - this could climb quite sharply i think/hope.
More importantly perhaps a bit of confidence in UK PLC which is very low down in priority for international investors these days. Although it has much higher capital ratios than equivalent US banks and on that basis should be safer, Lloyds barely manages half their value in relative terms. Whatever ones views on Brexit, it has diminished the UK as a place for investing in the eyes of international investors.