Barclays Passes 2021 Stress Test

No-moat Barclays comfortably passed the Bank of England’s stress test. At its lowest point, Barclays’ common equity Tier 1 ratio dropped to 8.2% from a starting point of 14.3% at the end of 2020, on a fully loaded basis. This was comfortably above the minimum of 7.0% regulators believe Barclays should hold in capital reserves. The stress test aims for a plausible and severe macroeconomic scenario, which is significantly more punitive than what the U.K. economy experienced during 2020. However, we would highlight that the scenario for the U.K. economy was harsher than for the global economy. As such, Barclays’ geographical diversification benefits the bank relative to the more U.K. focused banks in our coverage. Overall, the bank appears adequately capitalized, will remain functional without capital infusions in such a severe macroeconomic scenario, and does not rely on transitional accounting arrangements to smooth capital drawdowns throughout the stress. We maintain our GBX 185 per share fair value estimate.