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I have not got every stock market call right over the past two years. I am as aware as anyone of some of my AIM buy tips that have not done well in this horrid market. But on my big macro shouts, calling the banks as a sell with Barclays (LSE:BARC) as my conviction sell was spot on. So what now? I am tempted to grab some cheap google brownies by setting a penny share target price for the stock. That would be silly. That Barclays is a sell for any prudent value investor still holding on is beyond doubt but the problem is that there is such enormous lack of visibility that we just do now know what the share price should be.
Let’s start with the news that the Serious Fraud Office is looking into the LIBOR rate fixing affair. Hmmm. The track record of the SFO is patchy. If a few Barclays banksters do end up facing a porridge based diet for a few years the PR damage has already been done and those fellows will all, almost certainly, have already been handed a black bag and a big payoff by Barclays so the operational impact will be zilch.
Will Barclay’s huge retail base desert the bank as some are urging them to do? I doubt it. For starters where do they go? It is not as if the other UK banks are exactly in the Mother Theresa paragon of virtue leagues either. If you are lucky enough to have been extended credit by Barclays (and whatever the banksters say they are actually lending less and less to individuals and SMEs) you are hardly going to switch to a new bank on principle just hoping that they will lend you money. The odds are that they will not. And if you have a few pennies tucked away on your current account can you really be bothered to change all your direct debits, fill in loads of forms and provide 17 pieces of supporting anti money laundering documentation to show that you are not a Russian gangster? Of course you will not bother. I bank with Barclays as does my father and as did his father. Real Man Pizza Company banks with Barclays. We are all in credit (bar my father’s father who, assuming all banksters go to hell, is now in a Barclays free zone) and none of us can be bothered to switch.
But I do have two grave concerns. I see that the Bank of England is now warning that IF the Eurozone crises gets worse Britain’s banks may all need to be recapitalised again. Talk about stating the bleeding obvious. My only quibble with the Old Lady of Threadneedle Street is that it is not IF but WHEN. The Idiots who mismanage the EU continue with their policy of using pea-shooter after pea-shooter to solve a crisis which, to be fair to them, is probably insolvable with the Euro in its current structure. At some stage the big bazooka needs to be applied which means printing presses going into 11th gear and a few Southern European states leaving the Euro. But pro tem we will continue to have more “11th hour final summits” and resultant pea shooters. Which will in due course mean the UK banks needing a bailout.
It strikes me that half the UK banks are such basket cases that it is only the grateful taxpayer who will pony up. Barclays avoided a taxpayer handout last time (so allowing Bankster Bob et al to stay on the bonus gravy train) but with its earnings and balance sheet visibility shot to pieces no private backer (i.e. one making an investment as a commercial proposition) can possibly be interested. And so step forward once more the ever grateful UK taxpayer. This exercise will not leave much left for existing shareholders.
I have an even more grave concern – which has been my longstanding reason for putting Barclays down as a conviction short. During the financial crisis it seems to have been far more profitable than its peers only because of the mega profits its casino banking operation at Barclays Capital seemed to be making. How real are those profits? How are they derived? What is Barclays Capital’s exposure to complex derivative instruments that no-one understands? Has the company engaged in any other dubious practices? The problem is that no-one has any idea about the answers to those questions.
It might just be that Barclays has solved its last operational issue and that it is now squeaky clean, has no horrid derivatives exposure and can soldier on in which case its shares might just be cheap. But there are a stack of other shares out there you could own which are also cheap but where there is no, unquantifiable, downside. On a risk reward basis Barclays looks an appalling bet.
Incidentally should you wish to have some fun at the expense of bankster Bob Diamond ( a contrast with him having fun at his customer’s expense as has been the case historically) and win one of my Piss off Argentina mugs, feel free to enter the Bankster Bob Diamond caption competition HERE.
