October 31, 2012 3:36 pm

Barclays – discount on it

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Clarity on strategy and better news on trading needed

“One way or another I’m gonna find ya, I’m gonna getcha, getcha, getcha, getcha…” Regulators on both sides of the Atlantic have been listening to Blondie and finding new ways to get the banks. Barclays is a favourite. After PPI, Libor and interest rate products, it is now dealing with investigations into power trading and relationships with third parties. The news helped to take the shares down 5 per cent on Wednesday as investors attempted to price in yet more potential “one-off” charges. On 0.6 times tangible book value, Barclays’ rating errs on the side of caution even after a strong run since the Libor furore in July.

Some solace from the underlying business might help to push the rating higher, but Barclays’ third quarter numbers did not provide that. The bank did well to keep UK retail profits broadly flat given the absence of a one-off hedging gain. But investment banking, which accounts for over half of group profits, was a bone of contention. A disappointing third quarter at the fixed income, currency and commodities business – income fell to £1.6bn from £2bn in the second quarter – is concerning, especially as rivals did better. A slight decline in the fully-loaded Basel III capital ratio to 8.2 per cent does little to help.

All of which leaves next February’s strategy announcement as the final provider of possible upside for the shares. The fluffy rhetoric from the new management team is all about cutting pay and cleaning up the culture, but there may be no radical restructuring. Splitting retail from investment banking would be tough, so any rejig is likely to be more a modest shake-up of the investment bank. But without more clarity on strategy, better news on trading or a more lenient attitude from the regulators – in short, more certainty on what future book value will look like – the share price discount will stick around.

Email the Lex team in confidence at lex@ft.com

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