Proactive Investors - If Barclays PLC (LON:BARC) bosses want to address the bank’s share price weakness, buybacks are the answer, according to analysts at Jefferies.
Reports in the media reports earlier this month suggested that management has engaged Boston Consulting Group for a new strategic review to address weakness in the share price.
Areas upon which this review might focus would be “rear-view mirror issues” such as the capital consumed by the investment bank or optionality in the banks 'payments' businesses.com, the analysts said.
But they instead say the bank’s structure “demonstrated its worth during the pandemic” as strength from the markets business enabled large scale balance sheet provisions to be built as a “financial ballast” and with the diversified business mix generating an average 12% reported return on capital employed over the past eight quarters.
While the increased capital allocation to the investment bank attracts scrutiny from investors, “the fact of the matter is the CIB generated an average 17% ROE over the past eight quarters”.
What’s more, they add, “opportunities to allocate more capital elsewhere are scarce”, pointing to the outlook for UK loan growth that is “not particularly compelling” though likely to remain highly cash generative.
“The bottom line is that management's focus ought to be on returning incremental capital to shareholders.”
Estimating that around £19bn of profit could be generated between now and 2025, the analysts said they believe “more of this should be returned to shareholders to better address the share price weakness as opposed to another strategy review”.
The buyback forecast from Jefferies has been upped to £2.2bn in each of 2024 and 2025 from an estimated £1.5bn in 2023, with a further £3.3bn of dividends forecast over the period, while keeping a CET1 capital ratio buffer at around 14%.