After a very healthy recovery from the pandemic, the Barclays (LSE: BARC) share price has fared less well during 2022. In fact, year-to-date, it has dropped over 17%, grossly underperforming the FTSE 100 which has stayed flat during the same period. This has largely been due to worries around the UK economy, yet today, it also announced that it expects a hit of £450m arising from its US structured products unit, which will delay the share buyback programme. This news has seen the Barclays share price fall back around 3% today. But does this dip mean it’s a great time for me to buy this FTSE 100 stock?
News from today
It was announced today that the US structured products unit had issued too many structured notes, and this has required Barclays to repurchase these securities at the original purchase price. It therefore expects losses of around £450m arising from these repurchases. This will have a few major ramifications. Firstly, it will cause a 0.14 percentage point hit to the bank’s common equity tier 1 ratio (CET1). This measures a bank’s ability to withstand financial distress, and is heavily regulated. But despite this hit, the ratio will remain in the 13%-14% target range, which is perfectly sufficient.
Secondly, it was also announced that the £1bn share buyback programme will have to be delayed until the second quarter. Although this is not as bad as a full cancellation of the buyback programme, it still demonstrates a slight lack of confidence, a factor that could strain the Barclays share price.
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Finally, I’m slightly concerned that, alongside Barclays’ independent review of the matter, regulatory authorities are also conducting enquiries. Regulatory enquiries are never good news. This is due to the risk that more errors come to light in the near future.
Other factors
Fortunately, this does seem like an isolated mistake, especially as Barclays has been performing well since the pandemic. For example, even in the low-interest-rate environment in 2021, it was still able to record profits before tax of £8.4bn, a 170% year-on-year increase. This was aided by the excellent performance of the investment bank.
Such large profits mean that, at the current Barclays share price, it currently trades on a price-to-earnings ratio of under 4.5. This is very cheap and indicates that there’s significant upside potential.
Is the Barclays share price set to soar?
As a current investor, today’s news does worry me, especially if the consequences exceed just a one-off payment. But it’s still not deterring me from buying Barclays shares. Indeed, with interest rates rising, this is likely to create a more favourable macroeconomic environment for banks. This will hopefully help to boost profits in the lending business. This should help offset the losses the bank will incur from its forced repurchase of structured notes. As such, despite the risks that the company faces, this is a stock I’m very willing to buy more of for my portfolio.
