Will cost-cutting help Barclays’ share price as banking turmoil rages?

Barclays’ share price has been on the slide since the bank’s FY 2022 earnings announcement. This month’s banking sector crisis has only increased pressure. Will cost-cutting measures help the stock rise, or will it dive further?

Barclays' [BARC.L] share price was one of the biggest losers on the FTSE 100 on Friday. The stock closed 4.21% down as the fallout from Silicon Valley Bank (SVB) and Credit Suisse continued to send shockwaves through UK banking stocks.

Barclays’ share price had already been under pressure after disappointing annual results. But should markets calm, is now a buying opportunity? Or will the spillover from the failure of SVB and Credit Suisse mean the stock will be under pressure for some time to come?

Barclays’ share price under pressure

Barclays’ share price has now given up all the gains that were made since mid-October. Since closing at just under 190p on 9 February, the stock has declined over 26%, closing Friday 24 March at 133.9p. The stock is now trading at the same levels as it did in February 2021.

The root cause for the decline was due to underwhelming 2022 results published in February. These showed profit before tax had slid 14% year on year to £7bn. Weighing on profits was £1.6bn worth of litigation and conduct charges after a series of trading blunders, up from £397m in 2021.

Last year’s slump in equity markets also hurt profits. Barclays’ investment fees slid 39% year-on-year to £2.2bn, and the bank also cut its bonus pool in half following a series of regulatory and compliance-related mishaps last year.

Barclays plans more branch closures

To shore up business, Barclays is looking to cut costs. This month Barclays announced that it would close an additional 14 branches in Great Britain, bringing the total number of planned closures this year to 55. In 2022 the bank closed 142 branches.

In a statement on Barclays’ website relating to the closure of a branch in Wrexham, the bank said that with more customers choosing to use the Barclays app, Barclays Online or Telephone Banking had led to “a big impact on the number of customers coming in to see us”. The bank pointed out that 91% of people who used the Wrexham branch have also banked using the app, online and by phone in 2021.

Barclays is also eyeing up its pension scheme in the hunt for savings. The bank could save itself more than £200m a year after deciding to take a break from paying into its staff pension scheme, reports The Guardian. That comes even though the fund’s assets have dropped by £10bn in 12 months.

Scheme members are unimpressed with the bank’s decision to take a payment holiday, especially with inflation running at 10%.

Will Barclays’ share price continue to slide?

The banking sector has been battered on both sides of the Atlantic. In the US the failure of SVB has rocked Wall Street. In Europe the flashpoint has been UBS’ [UBS] rescue of Credit Suisse.

The spillover has seen UK banking stocks under increased pressure. Barclays, Lloyds [LLOY.L] and NatWest [NWG.L] have all been under pressure this month, while Germany’s lender Deutsche Bank [DBK.DE] lost 8% on Friday after the cost of insuring banks against defaults surged.

Will the turmoil continue? If it does, the fallout would likely put UK banking stocks under more pressure. For investors, it’s worth considering that the banks that failed this year failed for their own reasons. SVB was overly exposed to the tech sector, while Credit Suisse was beset by huge losses and a string of scandals.

Barclays and other UK banks have their own pros and cons, but since the 2008–2009 financial crisis regulations have tightened, including capital requirements. Barclays has a CET1 ratio of 13.9%.

Should a calm return to the market, now could be a buying opportunity. Barclays’ stock carries a PE ratio 4.32 and a forward dividend 5.19%. However, investors should consider how much banking sector volatility they can stomach.

Barclays’ share price has a median 12-month price target from analysts of 239p. Hitting this would see a 78.5% upside on Friday’s close.