Barclays PLC (LON:BARC) saw its shares take a spanking today, with the stock tumbling by almost 7%, chopping around £2bn from the bank’s market value, putting it on course for its biggest one day drop since immediately after the Brexit vote in June 2016.
The plunge comes despite the FTSE 100-listed lender reporting what on the face of it looked to be decent set of third quarter figures.
READ: Barclays slumps as third quarter profit rises but investment bank struggles
With conduct, restructuring and loan impairment costs falling to a combined £893mln from £1.57bn a year earlier, Barclays saw its pre-tax profits for the three-month period jump to £1.1bn from £837mln.
However, profits fell sharply at the Corporate and Investment Banking arm at Barclays International and this has caused investors to take fright.
Russ Mould, investment director at AJ Bell, said: “While this should not have been a surprise, given the trend seen in results from global integrated banking peers such as JP Morgan Chase, Citigroup and Bank of America, it does highlight the cyclical and volatile nature of the unit’s earnings.”
He added: “The combination of potentially fickle markets, expensive staff and regulatory pressure mean that the investment banking arm is a low-multiple business in valuation terms and this is weighing upon the rating attributed to Barclays overall by the market.”
Substantial discount to Barclays’ tangible net asset
With Barclays shares hitting 183.3p in late afternoon trading, down 6.95% on last night’s closing price, Mould pointed out that they trade “at a substantial discount to the bank’s tangible net asset (or book) value per share of 281p.”
He pointed out: ““Barclays therefore trades at a bigger discount to book value than Royal Bank of Scotland (LON:RBS), which is the market’s (not so) polite way of saying it is either not sure of the value attributed to the assets on Barclays’ balance sheet, it doesn’t like the bank’s strategy or both.
RBS will deliver its third quarter numbers tomorrow and investors in the majority state-owned lender could be nervous given the disappointment from Barclays and from Lloyds Banking Group PLC’s (LON:LLOY) results yesterday.
READ: Lloyds profits jump on absence of fresh PPI provision but shares fall amid Brexit fears
Lloyds shares initially fell back yesterday amid worries about rising loan impairments, but recovered late on and added another 1.1% today to 68.73p.
Mike van Dulken, Head of Research at Accendo Markets, said: “Shareholders in Barclays will be hoping that its shares can emulate those of UK peer Lloyds yesterday with a rebound and recovery.”
He added “Bears will be looking for another leg lower to the channel floor and November 2016 lows at 175p. Bulls may have to be content with any foray back towards the channel ceiling, needing something special for a breakout”.