Yesterday morning London’s Barclays PLC (NYSE:BCS) dominated the headlines on news that not one but two of its top executives have resigned over the recent scandal surrounding manipulation of the London Interbank Offered Rate (LIBOR). And with a $453 million settlement ordered from the company, many are wondering how this multinational banking giant will cope with the loss. Can Barclays regain its momentum after this devastating blow? Let’s find out.
With nearly $2.5 trillion in assets and operations in over 50 countries, Barclays Plc ranks as the fourth-largest bank in the world. Barclays also enjoys the distinction of being one of the longest-running banks in the world, with origins traced back to 1690. The company employs over 146,000 worldwide and brought in $58 billion in sales in the last fiscal year.
Last month, Barclays Bank was the subject of an international investigation into charges that the bank tried to manipulate the London Interbank Offered Rate and the Euro Interbank Offered Rate, two benchmarks for interest rates around the world. This is a serious matter because more than $800 trillion in securities and loans are linked to LIBOR alone.
Barclays was found guilty of these charges and fined a total over $450 million, including the largest ever fine levied by the U.K.’s Financial Services Authority. This shocking announcement sparked an exodus of two of Barclay’s top executives, including CEO Robert Diamond on Tuesday and Chairman Marcus Agius.
Even weeks before the settlement was announced, there were red flags about Barclay’s financial health. When the company posted first-quarter earnings at the end of April, it revealed a statutory loss of 474 million pounds for the quarter, compared with a profit of 1.65 billion pounds the same quarter prior year.
Then at the end of April, Barclays sold its entire $6.1 billion stake in BlackRock (NYSE:BLK) at a loss to help boost its return on equity. And most recently, Barclays was among the 15 financial institutions to have its ratings cut by Moody’s (NYSE:MCO).
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. From July 2010 to April 2011, this stock improved from an F-rated sell to a C-rated hold.
However, in the past few months buying pressure have once again dipped for this stock so BCS has fallen back into sell territory. The company is struggling in terms of fundamentals; of the eight fundamental variables I screened BCS on, the company only received a good rating for its cash flow.
All other fundamentall variables, including sales and earnings growth and return on equity, were D- or F-rated. To add insult to injury, the stock’s Quantitative Grade (which indicates the current level of buying pressure) is very weak as well. BCS receives a D for its Fundamental Grade and a D for its Quantitative Grade.
Bottom Line: As of this posting, July 3, I consider BCS a D-rated sell. With the recent shakeup, I really don’t see this stock moving out of sell territory anytime soon.
Recommendation: D-rated Sell
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