Barclays share price forecast: investment banking risks remain

on Apr 6, 2023
  • Barclays stock price has recovered modestly in the past few days.
  • The shares have jumped by more than 18% from the lowest level in March.
  • The bank’s key challenge is the slowdown in deal-making.

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Shares of Barclays (LON: BARC) have rebounded sharply in the past few days as fears of a major banking crisis ease. The stock rose to a high of 151p, the highest level since March 15. It has jumped by more than 18% from the lowest point in March.

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Why is BARC soaring?

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The finance and banking industry went through a major crisis in March following the collapse of SVB and Credit Suisse. As a result, most bank stocks crashed as fears of a contagion spread around the world. 

In London, Barclays was one of the top underperformers as its stock plunged by over 33% between its highest and lowest points during the month. This happened because, like Credit Suisse, Barclays has a large investment banking division.

It is unclear whether the banking crisis has ended or whether it has taken a breather. Some senior banking executives have warned about the industry. In a statement on Thursday, the head of Unicredit said that European banks are significantly safe with their balances rising. But he also warned against complacency, saying:

“It’s almost inevitable that something bad will happen, and governments won’t have a playbook because our playbook is for past crises, not the next crisis. That’s why I tell my team: “The only certainty is uncertainty.”

In a separate statement, JP Morgan’s Jamie Dimon warned that the crisis is not yet over. Like his Unicredit counterpart, he said that there were no parallels between the recent crisis and the Global Financial Crisis. He said:

“As I write this letter, the current [banking] crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”

What next for the Barclays share price?

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A common question among investors and customers is on the safety of Barclays. I believe that Barclays, like other strategically important banks, is a relatively safe institution. 

The most recent results showed that it has a CET Tier 1 ratio of 13.9%, which is higher than that of its American counterparts like Bank of America and Wells Fargo. In all, European banks like Lloyds and Unicredit have among the highest CET ratios in the developed world.

Like Lloyds, which I wrote about here, will benefit from the resilience of the British economy. Data published recently shows that UK’s consumer confidence has bounced back. House prices also jumped in March, signaling that the sector has bottomed.

The key risk for Barclays is that deal-making is still shaky after tumbling in 2023. Data by Dealogic

that the volume of mergers and acquisitions has dived in most countries expect Canada. In the US, the value of deals so far has dropped by 41% to $306 billion. Of this, Barclays has only advised deals worth $59 billion. Its global investment banking revenue stands at $660 million.

Therefore, Barclays has more work to do in the coming months. Unless the investment banking division recovers, the bank will likely underperform other British banks like Natwest and Lloyds that focus on individual and corporate lending. In all, I suspect that the Lloyds share price will rise to the key resistance level at 176.14.

Barclays Jamie Dimon Finance & Banking Mergers & Acquisitions Stock Market