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March 20, 2023

Barclays share price has dived: Is it being unfairly punished?

Barclays (LON: BARC) share price has been in a strong freefall in the past few weeks as concerns in the banking sector spread. The stock plunged to a low of 138.20p on Wednesday, its lowest point since October 20222. In all, it has fallen by over 28% from the year-to-date high. 

Is Barclays being punished unfairly?

Barclays stock price has nosedived following the collapse of key banking groups like Silicon Valley Bank and Signature. The sell-off gained strength on Wednesday as concerns of Credit Suisse continued after the Saudi National Bank ruled out more financial support.

Investors are concerned that these issues could lead to another global financial crisis, such as the one we saw after the collapse of Lehman Brothers. However, a closer look at the banks that have collapsed shows that they both suffered from mismanagement. For example, SVB bought billions of dollars worth of long-term government bonds. It then made substantial losses as those bonds reversed.

For Barclays, there are concerns that the bank, together with other European banks, are being punished unfairly. The company, together with other European banks, are more regulated than their American banks. As such, they are mandated by law to have more capital buffers to ensure that they can survive most crises.

The most recent results shows that Barclays has a CET 1 ratio of 13.9%, which is higher than that of key American banks. For example, Bank of America, JP Morgan, Wells Fargo, and US Bank have a CET ratio of less than 10.5. JP Morgan, which has become a gold standard for the banking sector, has a ratio of 12%. 

Therefore, based on the current crisis, it seems like Barclays is in a safe position. Unlike SVB, the company goes through stress tests by both the Federal Reserve and the Bank of England. As such, unlike other regional banks, we will likely not see a major increase in capital requirements.

Barclays share price forecast

BARC stock by TradingView

The 4H chart shows that the BARC stock price has been in a severe downward trend in the past few weeks. This sell-off saw it crash to a low of 138p on Wednesday. It then made a slow comeback after the Credit Suisse bailout. The stock remains below all moving averages and the Supertrend indicator.

Further, the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the oversold level. Therefore, while I believe that Barclays is being unfairly punished, there is a likelihood that it will remain under pressure for a while. Thursday’s bounce back is likely a dead cat bounce. In the long term, however, we can’t rule out a situation where the stock bounces back.

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