Europe Deal, Spending Helps Spread Some Holiday Cheer to Barclays’ Stock Finally
Shares of Barclays (NYSE:BCS) gained more than 4% on trading last Friday and is up 8% Monday to end the jinxed week which saw the bank’s share lose more than 12% of its value over the first three days of last week. The respite came after news that Euro-zone members were considering ways to limit the involvement of private firms in the region’s bailout came to light. [1] This piece of good news outweighed the impact of a dismal Italian bond sale and deteriorating debt situation in Greece on investor sentiments, allowing the growing pressure on European bank share prices to ease. Barclays’ closest rival, the 82%-state-owned RBS (NYSE:RBS) also saw its shares rise by 7% on Friday.
We have a $15 price estimate for Barclays’ stock, substantially ahead of its current market price, which we attribute to the strong negative sentiments in the market against global banks. Notably, both RBS and Barclays have lost more than 36% and 30% respectively of their market value since October 27 – just a month ago.
See our full analysis for Barclays’ stock
Barclays stirred up a hornet’s nest in the U.K. early last week when reports detailed the extremely bloated compensations paid by the British bank to its chief executives. The bank reports mention that its former CEO John Varley received a £4.4 million ($7 million) compensation for 2010, which was increased to £10.1 million ($16 million) in cash and stock for current CEO Robert Diamond. [2]
The British High Pay Commission criticized this disproportionate salary in times when the country’s economy was in doldrums. The bank’s dismal performance in recent times have also triggered demands for a government body to track such high salaries – dubbed “rewards for failure” by the country’s Business Secretary.
As an investor, the high compensations directly impact the bank’s share price, as it draws from the bank’s bottom-line figure by adding to the employee-related expenses. This drives down operating margins by sizable amounts, with the poor performance of the bank overall hardly justifying such lavish compensations.
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Notes:- Euro zone considering end to future private sector involvement, Reuters, Nov 25 [↩]
- Barclays CEO Pay ‘Corrosive’ for U.K. Economy, Study Says, Bloomberg Businessweek, Nov 22 2011 [↩]