Barclays’ update raises questions for the banking sector
As Barclays is the first of the banks to report this week Graham Spooner, investment research analyst at The Share Centre, shares his thoughts on the sector and explains why Barclays, which has been their sector favourite, is put under review.
"Barclays' results this morning have confirmed the right issues leaked yesterday, although it is larger than some analysts expected and the timing has come as a surprise. Barclays' actions show the dominance of the new regulatory environment it operates in. The near financial meltdown has seen politicians and regulators come down hard on the sector as it attempts to repair reputational damage suffered since 2008.
"Figures appear to be at the lower end of expectations with higher costs for PPI and swap mis-selling. Barclays has for a long time been our preferred high street bank however, we are putting our recommendation for investors under review. This morning's update has once again raised doubt over the sector and it appears not to be out of the woods just yet.
"The continuing debt crisis involving many European countries, PPI provisions and Libor scandals, have piled further pressure on the banks and investors should be aware that in the short term regulatory capital issues could continue to cast a shadow over the sector.
"Once a favourite for income seekers, the sector has seen much of the dividend flow disappear, however there is still an appetite amongst investors. Over the last year there has been a notable improvement in share prices however, investors should be aware this update raises further questions for the sector and further recovery will take time.
"Data from The Share Centre's Profit Watch UK shows the banking sector was one of the poorest performers in terms of revenues in 2012 due to weak lending, and write-downs pushed profits down further seeing the sector contributing to £7.7bn of the UK's profit decline of £25.6bn.
"Whilst the list of top ten earners in the UK market have been fairly steady over the last six years financial stocks were the main fallers, with Barclays disappearing from the list altogether in 2012. Both HSBC and Standard Chartered showed the benefits of capitalising on regions less affected by the banking crisis in the developed world. Standard Chartered made its first appearance in the top ten most profitable companies in the UK market in 2012 and HSBC is the only bank that has consistently featured in the list over the last six years. The bank is seen as a safer option than other banks due to its geographical spread, more conservative management and better balance sheet and deposits.”