Lloyds Banking Group may be top of the FTSE 100 risers after its results, pulling fellow taxpayer supported outfit Royal Bank of Scotland with it, but Barclays is missing out on the gains.
It is down 1.15p at 254.15 after analysts at Berenberg cut their rating from hold to sell, based on worries about its investment bank and possible problems in the US. Berenberg’s James Chappell said:
‘’Barclays is one of our wildcards for 2015 as we believe it has the potential to emerge as a long-term winner in the sector. Unfortunately, that change seems further away than we had hoped as the malaise from the lacklustre investment bank strategy has worsened. The catalyst remains the new chairman.
However, in giving Barclays a chance to deliver on its targets, we think this just makes the problems in resolving the key issues at the investment bank much larger. We downgrade back to sell as a result and cut our price target to 200p [from 220p]’’.
In more detail, he says:
‘’Barclays is clinging to the investment bank with its regional Universal Banking strategy, even though the chief executive has said Universal Banking is dead. This causes confusion in our view. RBS’s situation provides a warning that trying to cut investment banking costs to meet return expectations when the investment banking industry is facing structural headwinds only leads to outsized losses. In our view, there is no cyclical rebound coming to rescue the investment banks.
Barclays must either lay out a commitment to a full service, independent independent bank or choose to downsize it more dramatically. We are agnostic about both options, but Barclays must decide soon to avoid a similar outturn to RBS.
An additional concern for us is the significant build up of risk in the US. We see this in two areas. The first is Barclaycard, where the US business has driven the majority of growth over the last three years. This has coincided with falling unemployment in the US. If US economic growth continues to slow and employment worsens we would be concerned about losses.
The second is that Barclays seems to have stepped into the void for US leveraged lending just as others have withdrawn. We have cut our earnings per share [by 15%] to reflect the weaker-than-expected revenues in the first quarter of 2015 and our concerns about the outlook for both industry revenues and Barclays’’.
