James Moore: From an ethical view, you must dump Barclays

Investment View: Barclays is suffering because its head is first on the block... attention will shift to competitors

Barclays

Our view Sell

Share price 165.6p (-30.5p)

Barclays has not been the best call that this column has made.

In February when I last looked at the stock it stood at 236.95p and I said hold.

So I'd have said oops even before the shares took a bath as a result of the £290m in fines it will have to pay for fixing Libor interest rates.

But the financial argument for holding Barclays when I last looked stood up well. The shares were very cheap on pure valuation grounds trading on just 0.61 times the forecast value of its in-force businesses (book value), 6.3 times forecast earnings with a 3.2 per cent prospective yield.

With the shares having fallen sharply since then, the valuation metrics look even more compelling. Barclays trades on about 50 per cent estimated book value, a multiple of about 5.5 times this year's forecast earnings with a yield (forecast) of just above 4 per cent.

That looks very, very cheap.

What's more, the financial impact of the fines, even though £290m appears to be enormous, is actually very limited. It equates to about a week and a half's profits or 2p a share, so even though the cost of it will be borne by shareholders, and not by the perpetrators, it's a slightly bruised rib rather than a broken one.

Worth a speculative punt then? Hold your horses. There are equally compelling reasons for hanging back. For a start, Barclays could face further fines from other regulators around the world, although it is probably fair to say that the worst from that quarter is over.

What has barely got started are the civil law suits in the US. These will take an awful lot of time, including management time, cost an awful lot of money, and will likely result in further, substantial, one-off hits to earnings looking forward.

Then there is the management issue. Barclays right now gives every appearance of a bank in chaos. The pressure for heads to roll is only going to grow over the coming weeks and months. Will Barclays chief executive Bob Diamond and its chairman, Marcus Agius, be able to resist the clamour for resignations? That has only just got started and it's an open question right now. The public outrage surrounding what went on will surely demand some form of sacrifice. And who would take over if one or both of these two men go?

Ah, but before heading for the exit Barclays still has one string to its bow: it's not alone. Others are likely to face similar pain, and indeed the US Justice Department highlighted its exceptional co-operation when its investigations started. Co-operation presumably not so forthcoming from rivals.

Barclays is suffering right now because its head is first on the block. If it can weather the storm attention will shift to its competitors. There will be breathing space.

This column is unique among newspaper tipping services in that it considers the ethical dimension of an investment. As I've discussed before, this is always something of a grey area because what some would consider unethical (say gambling) others don't have any problem with.

But what about a gambling company that plays with a stacked deck, rigging events in its favour?

The sort of person who likes a bet and therefore views gambling companies as a legitimate investment (I count myself among them) would be appalled at that sort of behaviour and run a mile. Isn't this what Barclays was doing?

From an ethical perspective the advice is clear. Sell.

From a purely financial perspective the judgement is more finely balanced. However, this sort of scandal rarely closes in one act. Usually revelation piles upon revelation, political pressure builds up, heads roll, the authorities drop a ton of bricks.

Barclays shares are going to remain under pressure for some time as a result. The current furore will eclipse factors such as an extremely cheap-looking valuation. The shares can't help but remain pressured.

So sell, until such time as one or two of its UK-listed rivals are hauled over the coals. Then, if you have no truck with ethical investment, consider buying back into Barclays.

As for Royal Bank of Scotland, HSBC, and Lloyds, now might be a good time to pull out of them too until we have a better picture of where they sit in this tawdry affair.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor