Could Barclays(LSE: BARC) be the runaway winner in the banking sector in 2017 and beyond? Let me tell you why I think it could.
The key thing for me is that Barclays is the one that has firmly grasped the Brexit nettle, and it fully understands what it needs to do to minimise the negative effects of the UK leaving the EU.
Along with the bank's third-quarter results, chief executive Jes Staley reiterated the goal of Barclays' restructuring, which is to create "a simplified transatlantic, consumer, corporate and investment bank", with the dumping of non-core businesses as quickly as possible being a key step along the way.
That more outward-looking strategy should favour Barclays over rivals more focused on the UK and the EU, although I actually remain convinced that the rest of the UK's banks aren't in as much danger as many seem to think.
Barclays' slashing of its dividend in order to focus expenditure on its restructuring was a bold move, and a smart one. The others must surely be wondering, in the wake of the referendum result, whether their own strategies of ramping up their dividends as they emerge from the banking crisis are perhaps now looking a bit foolhardy. Lloyds Banking Group, for example, is still forecast to provide a yield of nearly 6% in 2017, at a time when EPS forecasts look weak.
Share price boost
As a mark of confidence, investors have pushed Barclays shares up since their 2016 nadir of 121p, and today they stand at 235p. That's an impressive performance, but it should also sound a note of caution, as it has pushed the shares up to a P/E of 18 now, based on 2016 year-end expectations -- Lloyds shares are on a P/E of just half that.
Still, the City's analysts are predicting a 50% rise in earnings for Barclays in 2017, which would drop the P/E to a more respectable 12. That's still a relatively high rating for a bank right now, and I wouldn't be at all surprised if we have a pause in the recent bullish run in the first half of the year. But if results continue to show positive restructuring progress, I can see an overall upwards trend continuing through the year.
What about the dividend?
When will Barclays' dividend start rising again? When the bank announced the cut at the end of 2015, we were told to expect 3p per share for 2016 and 2017, so a resumption of growth this year appears to be out of the question. And the firm's statement that it expects to "pay out a significant proportion of earnings in dividends to shareholders over time" (my emphasis) suggests to me that if we see any rise in 2018 it will only be a small one.
But that to me reinforces the nature of Barclays strategic plans, that they really are aimed at the long term and not at satisfying shareholders with short-term pocket money.
Barclays' 2017 will be very much not about 2017 itself, but about setting the bank up for the years that follow. And I like that kind of long-term thinking.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.