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


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
ebooksA special investigation by Andy McSmith
Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
Details of the self-cleaning coating were published last night in the journal Science
Approved Food sell products past their sell-by dates at discounted prices
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

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

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable