Will Hector Sants Make Barclays A Safer Share?

Published in Company Comment on 12 December 2012

Barclays (LSE: BARC) has just hired the former top banking regulator. Will this be good for the shares in the long term?

Barclays (LSE: BARC) (NYSE: BCS.US) has today announced the appointment of Hector Sants as head of compliance and government and regulatory relations. Mr Sants' previous role was chief executive of the Financial Services Authority, the government's regulator of the industry.

Mr Sants joins Barclays following a period of considerable upheaval at the bank. In July, the bank lost its chief executive, chief operating officer and chairman. This followed Barclays' involvement in a scandal that has likely led directly to Mr Sants' appointment.

In June this year, Barclays confessed that its staff had been colluding to fix a key benchmark interest rate. This led to regulators fining Barclays £290m. While that might not sound like a huge amount to a global bank, a bigger hit was taken to the company's reputation.

Work to be done

Investors will be hoping that Mr Sants will introduce a more rigorous range of standards and processes to the bank. If he succeeds, this would reduce the risks to shareholders.

Unlike sector rivals Lloyds Banking and Royal Bank of Scotland, Barclays is already profit-making and dividend-paying. The forecast dividend for 2012 amounts to a 2.6% yield. An 11.6% increase in the payout is expected in 2013, boosting the yield to 2.9%.

At today's price, Barclays trades at just 7.2 times forecast earnings for 2012. Earnings growth is expected to continue in 2013, bringing the price-to-earnings (P/E) ratio down to just 6.8 times expectations.

Given that the average FTSE 100 (UKX) share trades on a P/E of 15.4 times earnings, Barclays looks too cheap. By half.

As Barclays is currently rated so low, any improvement in perceptions could have a significant positive impact on the shares.

What next for the shares?

There is clear room for Barclays to move higher. On a P/E basis, Barclays currently trades at a 57% discount to HSBC. The discount to Standard Chartered is 55%. Barclay's growth prospects do not look significantly worse than either of these rival banks. In fact, Barclays' dividend is forecast to grow faster than Standard Chartered's and only marginally slower than HSBC's.

If that wasn't enough, I think that both HSBC and Standard Chartered are already cheap themselves. Perhaps Mr Sants' appointment will see the beginning of a significant re-rating of Barclays' shares.

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> David owns shares in Lloyds Banking and Royal Bank of Scotland, but none of the other companies mentioned. The Motley Fool owns shares in Standard Chartered.

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Wuffle 13 Dec 2012 , 6:45am

Compare Hector and Bob.
One caught for corporate fraud, one did the catching.
Now compare their wages.
Hector has worked out that you can't spend the moral high ground.


theRealGrinch 13 Dec 2012 , 4:31pm

the revolting door continues pushed by those on the make and on the take.

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