The investment management unit of Barclays said it appointed James Buchanan-Michaelson as general manager of Barclays Bank (Suisse), Reuters reported on Wednesday.
That was apparently the most relevant headline news on Barclayslast week.
Well, the bank also named Jonathan Eckard as a senior equity research analyst, it emerged on Tuesday, while on Monday an insider bought 12,000 worth of shares but its not even that!
So, what did it happen behind the scenes?
Brokers, Always Blame Them
On Wednesday, Morgan Stanley raised its price target for Barclays to 333p a share from 315p (+5.7%) and thats why the shares rose.
I had a long conversation with a London-based broker earlier this week, who suggested that Barclays could deserve a significant premium versus a few other investment banks, such as Deutsche Bank.
That view isbased on the two banks relative valuations, which are pretty similar. Furthermore,Deutsche Bank, which has rarely traded at a premium versus Barclays, has more stock of provisions for litigation at $3.6bn vs $2.6bn at Barclays,but Deutsche Bank has not settled for the Libor, a second source noted.
In short, Barclays (+2% in 2015) is a much more appealing proportion than Deutsche (+30% this year), I was told.
A More Resonable Scenario?
Undoubtedly, Barclays has been boosted by upbeat reviews from analysts. Afew European brokers have pencilled in a price target in the 250p-270p range, while most American brokers suggest Barclays could be worth more than 300p a share.
My source acknowledged that the market may be too bullish: EPS growth forecasts are based on GDP expectations, and those are insanely high, he noted, adding thata 220p to 230p price target is possible, if things do not go according to plans, but that would imply a significant drop in risk-weighted assets.
Currently trading at 252p,I think downside for Barclays could be greater than 15%. I factor in additionalprovisions for losses and litigations as well as goodwill impairments and lowerreturnsin its investment banking unit and, why not, a few downgrades from brokers in months ahead!
On top of the redundancies that have already been announced, the good newsis that big job losses seem inevitable in investment banking at Barclays. As the investment risk associated to this British bank heightens, however, youd do well to consider alternative investments such as HSBC,for instance.
I am not a big fan of banks right now, and I’d choose instead some terrificincome and growth stocksoutside the bankingindustry.
With these value candidates, most of whichhave a much higher yield than that of Barclaysand promise higher capital gains, too,you should comfortably deliver returns in the double-digit territory for a very long time — just as you may have done so far this yearwith most of the value propositions included in our free report!
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