strong earnings expected to help the UK high street bank outperform its peers while rumours abound as to its likely european takeover targets
Barclays' share price could come under pressure due to bad debts but should perform better than its peers, buoyed up by earnings, according to fund managers.
There will also be pressure on Barclays' earnings from regulatory changes that seek to put a cap on the amount banks can charge smaller companies. However, the bank is seeking to make overseas acquisitions, which should provide support for its share price.
Geoff Miller, investment manager at Exeter, said Barclays is expected to release some key performance figures this week, providing an insight into concerns over banks' bad debts since the slowdown in global markets.
'Investors are worried that future profits of Barclays Capital might be stifled by bad debts as the branch specialises in corporate business,' said Miller. 'We expect bad debts to show some deterioration this year but the company will perform better than the average stock in its sector. Earnings growth is going to hold up well but changes in the UK regulations could put some strain on earnings. However, we think Barclays' earnings momentum will be supported by the acquisitions it makes.'
Rumours surrounding takeover targets have centred on Spanish banks. However, James Eden, banks analyst at Commerzbank, said investors would like to see Barclays build on acquisitions and organic growth in Europe rather than embark on a big merger. Eden remains confident the chief executive officer of the company, Matthew Barrett, has a clear focus on shareholder value, however.
'The company is looking further afield in Europe and elsewhere, building on its strength from the UK,' said Miller. 'We would not be surprised if it acquired Standard Chartered.
'The company is being very selective and has stated that it wants to make acquisitions to enhance shareholder value and will not be looking at loss-making deals. The US is therefore an unlikely market for the company to make any acquisitions. It is difficult to crack and an acquisition would not enhance shareholder value within Barclays' timeframe.'
Barclays estimated the changes in banking regulations by the UK Government will cost the company about £150m in annual revenue.
The UK House of Commons select committee has not yet set a date from which the price discrimination requirement will have to be adhered to but the effect is clear. It will mean additional costs to banks as they will need to pay interest on the accounts of small companies, give them free banking or offer them a choice between the two as a first step towards a better deal.
'The UK is introducing bolder regulation and imposing a price cap on smaller businesses,' said Miller. 'This is more of a political move as politicians are of the view that bankers are making too much money out of small and retail businesses. This change could mean some areas of the banking sector might not be profitable. In the long run, though, there will be no significant impact on banks.'
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