Barclays PLC (LON:BARC) was a FTSE 100 faller today as German broker Berenberg cut its rating for the banking giant to ‘sell’ on valuation grounds, saying: “No party lasts forever.”
In a note to clients, Berenberg’s analysts said: “The US and UK consumer credit cycles are nearing a crescendo and structural headwinds to investment banking (IB) remain, despite elevated event-driven activity during H2 2016.”
They added: “ We believe Barclays has strong core businesses relative to European peers but remains susceptible to normalised credit losses and IB activity.
“A sharper-than-expected end to the US credit cycle is a risk and capital remains a work in progress.”
The analysts noted that US consumer credit has reached a new peak of 20% of GDP and Barclays’ US card lending has grown by 25% annually since 2013.
They said: “While the election of President Trump may postpone and soften the cycle, this has not disappeared.”
Cycle crunch …
And the analysts warned: “A sharper end to the credit cycle – in line with the 2002 recession – could reduce Barclays’ group earnings by 25%.”
In conclusion, the analysts said that they “struggle to justify” Barclays’ current valuation of 12.2x their 2018 EPS estimates and therefore downgrade their rating .
They added: “We believe Barclays is strategically well placed as the top-ranked European IB in the US but expect structural headwinds to outweigh this relative strength.”
In reaction, Barclays' shares on the FTSE 100 index were down 2%, or 4.75p to 225.85p in early morning trading.