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Banking

The silver lining for Barclays shareholders in Libor-gate

The Libor scandal is unlikely to dent the group's earnings and could add impetus to chief executive Bob Diamond's belated cost-cutting drive.

What now for besieged equity holders in Barclays?

Last week’s free-fall in Barclays stock, after the Libor scandal, triggered a flurry of broker notes with buy recommendations on the FTSE-listed shares, citing manageable litigation costs and attractive valuations. Although the stock surged 5% on Monday open, in response to Marcus Agius’s decision to resign as chairman, it’s still trading at an estimated price to net asset value ratio of 0.41 for the 2012 fiscal year.

Brokers had expected a positive re-rating of the bank subsequent to its first-quarter results when it announced profit before tax of £2.4bn, a 22% year-on-year increase, driven by stronger-than-expected performance in its UK retail unit and corporate banking franchise. But the intensification of the eurozone crisis and the recent Libor scandal have dragged shares lower.

Nevertheless, analysts are keen to point out that the £290m fine to settle regulatory investigations into the manipulation of Libor barely represents a headwind for earnings.

In Investec’s words in a note published on Monday: 


Around one-third of this fine was actually provisioned in Q1 2012, with the balance to be taken in Q2. Analyst speculation in relation to the scale of potential litigation risk (in our view) considerably overstates the hit to Barclays.

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