The Market Is Still Underpricing This Bank

Barclays PLC — interim results for the half year ended 30 June 2026, published this morning. All figures in pounds sterling.

Barclays is a UK-headquartered bank that runs five businesses, and understanding the split matters more here than at most banks because they behave very differently.

• Barclays UK — the high-street bank: current accounts, savings, mortgages and UK credit cards. Steady, high-return, and the franchise most exposed to the British consumer.
• UK Corporate Bank — lending and transaction banking for British businesses.
• Private Bank & Wealth Management — managing money for wealthier clients.
• Investment Bank — trading (equities and fixed income, currencies and commodities), plus advisory and underwriting fees for corporate clients. The largest consumer of the group's balance sheet, and the most volatile earner.
• US Consumer Bank — American credit cards, largely partnership-branded.

The investment case turns on three things: whether the UK franchises keep earning 20%-plus returns, whether the investment bank earns its keep rather than simply absorbing capital, and whether the buyback programme keeps shrinking the share count fast enough to compound value per share.

Normalising the headline

Two one-off items distort this half in opposite directions, and stripping them both out makes sense for clarity.

On the positive side, the sale of the American Airlines card portfolio produced a £225 million gain. Remove it, and income still rose around 9.3% and pre-tax profit around 12.3%, with an adjusted return on tangible equity of about 14.2%.

On the negative side, a single-name £228 million impairment in the Investment Bank in the first quarter inflated the loan-loss rate. Remove it, and the half-year rate of 62 basis points falls to around 52 basis points — in line with last year, with the second quarter alone at 51 basis points, inside the through-cycle range.

After removing both distortions, the half remains good. That is the key point: the core result is stronger than the headline distortions suggest in either direction.

The two one-offs, and what they do to the half

Income and net interest

Net interest income in general increased 11% to £6.768 billion, excluding the investment bank and head office figures — the group total rose 9% to £7.7 billion. Barclays UK delivered £4.0 billion of net interest income, up 8%, with structural hedge income more than offsetting deposit dynamics and mortgage margin compression.

Looking specifically at the margin, the Barclays UK net interest margin weakened slightly between the quarters — from 3.72% in the first quarter to 3.68% in the second — though it remains 13 basis points above where it stood a year ago. It is good that it is keeping up; but the sequential easing shows management needs to balance growth and hedge reinvestment to keep offsetting deposit competition and mortgage repricing.

The investment bank — equities powered through

Looking at the investment bank's income mix between last year's first half and this year's, the growth has come substantially from the equities side and a little from fees and underwriting. It is really equities that powered through: income went from £1.83 billion up to £2.38 billion — a rise of 30%, with the second quarter alone up 45%.

Fees and underwriting rose 24% to £1.5 billion, led by advisory (+67%) and equity capital markets (+65%) — that is, fees for advising on takeovers and for helping companies raise money by issuing shares. Fixed income, currencies and commodities was broadly flat. Overall investment banking income rose 11% to £8.0 billion with a 15.5% return on tangible equity: the division earned its capital this half.

Two points to be aware of, however. This is historically the more volatile part of the business, which matters more when times get tougher. And the investment bank now absorbs 56% of group risk-weighted assets against a 2028 ambition of around 50% — so it remains the biggest capital-allocation stress in the group.

Credit quality — the direction I don't like

Heading over to credit quality and expected-loss coverage, there wasn't a massive deterioration in the figures — but the direction bothers me a little. UK credit-card 30-day arrears rose from 0.7% to 0.9%, which is not ideal, and 90-day arrears rose from 0.2% to 0.3%. That might really be underlining some issues — the background concern about where the overall economy might be going — and it may be one of the reasons the market didn't take these results as positively as the headline figures suggest it would.

On the US credit cards, 30-day arrears edged up from 2.8% to 2.9% — the US side runs significantly higher than the UK equivalent — while 90-day arrears held at 1.6%. The share of US card balances with credit scores below 660 has crept up from 12% to 14%, which is worth watching.

Against that, the balancing evidence is reassuring: Stage 2 and Stage 3 loan shares are essentially unchanged since year-end (8.3% and 2.0% of drawn loans), total coverage actually rose from 1.4% to 1.5%, and the second quarter's 51 basis-point loan-loss rate sits inside the through-cycle range. So the deterioration is concentrated and early-stage rather than broad-based.

Capital, buyback and distributions

The company announced a new £1 billion buyback — equating to approximately 1.4% of the current share count — which is significant and might help continue to drive per-share profitability. It was also around 20% above the £831 million the market expected.

The half-year dividend of 5.9p is up 97% per share year on year, taking the total first-half capital return to £2.3 billion — roughly 55% of attributable profit and about 3.2% of the market capitalisation in six months. CET1 stands at 14.3%, or 14.0% pro forma for the new buyback — the top of the 13–14% target range, so the returns are credible but not free. The share count has fallen 4.7% in a year, which is exactly why earnings per share is growing faster than profit.

Divisions at a glance

Divisional returns, H1 2026

The Private Bank deserves a word, because it looks contradictory. A 26.1% return on tangible equity is the highest in the group — but income grew just 2% while costs grew 11%, giving negative jaws of 8.2 percentage points. "Jaws" is simply the gap between income growth and cost growth: positive jaws means income is outpacing costs, negative means the reverse. A high-return division running negative jaws is a division living off past investment, and that has to reverse.

Two further comments on the management statements. First, the company is on track for its 2026 targets and feels well supported — though the full-year guidance of around £31.5 billion of income does still imply a softer second half (roughly −9% half-on-half, while still up around 5% on the second half of 2025 — a sensible allowance for a less favourable markets environment and the non-repeat of the American Airlines gain).

Second, they express confidence in the 2028 targets: greater than 14% return on tangible equity, a low-50s cost:income ratio, and the investment bank at around 50% of group risk-weighted assets. Positive. The remaining proof points for 2028 are real — the Private Bank's negative jaws need reversing, and £19–26 billion of regulatory risk-weighted-asset inflation from Basel 3.1 and the US internal-ratings-based transition has to be absorbed — but the language in this statement is disciplined rather than promotional.

Six-year financial history

The five-year shape is a bank compounding gently: pre-tax profit from £3.5 billion (the COVID year) to £10.1 billion, earnings per share from 8.6p to 42.3p — nearly five-fold — with the share count shrinking by a fifth doing much of the per-share work, and net asset value grinding steadily higher to £77.8 billion.

I am generally very happy with Barclays. There is a lot of really good profit metrics coming out of this company: the core result is stronger than the headline distortions suggest in either direction, the UK franchises are earning 20%-plus returns, the investment bank is earning its keep rather than just consuming balance sheet, and the capital-return machine — £2.3 billion this half, a fresh £1 billion buyback, a 97% dividend increase — keeps compounding value per share. I think they are going to continue progressing, and I think they continue to be undervalued in the current situation.

I understand there is some concern about where the macroeconomic background is going — the card-arrears drift is there and it is something to watch — but things are actually still, nonetheless, pointing in the correct direction, and at this moment in time I don't personally think there is a particular credit risk related to the banks. The market is significantly underpricing the situation, and I think there is more to come.

For the full year I am anticipating pre-tax profit growth of around 8–10% on 2025, which at the current share count equates to an earnings override of 58.95p per share. I apply a growth rate of 7%, and — given these results — a very minor uplift of 2%, really to reflect the share buybacks still to come more than anything else, plus the minor background positives. I do think there is some risk in the company given the state of the macroeconomic markets, so the risk factor is a relatively high 30%. That produces a valuation of 750.41p against a current price of 530.40p — a value opportunity of approximately +41.5%. I still think this is a buy share.

Valuation snapshot — tear sheet 28 July 2026

This gives an actual valuation of 750.41p against a current share price of 530.40p — a value opportunity of +41.5%. The counterweight deserves stating. At around 530p the shares trade at roughly 1.25 times tangible book value of 423p, which on a residual-income reading already implies the market believes in a sustainable return on tangible equity of around 13% — above the 2026 floor, below the 2028 ambition. On that more conservative lens, full delivery of the 2028 targets is worth somewhere in the mid-500s to low-600s pence, and the pre-results analyst median sat at 575p.

My framework is more generous because it capitalises the earnings power directly — 58.95p of earnings at a modest 8x multiple with 7% growth — and because I believe the per-share compounding from the buyback programme is persistently underestimated. Either way the direction is the same: the shares are too cheap; the frameworks differ only on how much.

• Consumer credit turns properly. The card-arrears drift is early-stage and concentrated, not broad-based — but if UK unemployment rises or the macro backdrop deteriorates, that drift becomes a trend and the loan-loss rate moves out of its through-cycle range. This is the risk that most concerns me.
• The investment bank is the volatile earner. Equities income up 30%, and up 45% in the second quarter, is a wonderful number in a good market. It is not a number to extrapolate. A less favourable trading environment takes it back, and the division is 56% of group risk-weighted assets while it happens.
• Regulatory capital inflation. £19–26 billion of risk-weighted-asset inflation from Basel 3.1 and the US internal-ratings-based transition has to be absorbed. That is capital not available for buybacks.
• The second-half guide is genuinely softer. Around £31.5 billion of full-year income implies roughly −9% half-on-half. That is management being sensible, but it does mean the momentum in these numbers is not the run-rate.
• The Private Bank's negative jaws. Income +2% against costs +11% is not sustainable, and it is one of the stated proof points for the 2028 targets.
• Net interest margin drift. Barclays UK's margin easing from 3.72% to 3.68% quarter on quarter is small, but deposit competition and mortgage repricing are persistent pressures that the structural hedge has to keep outrunning.
• My earnings override is a forecast, not a fact. The 58.95p rests on 8–10% full-year pre-tax profit growth. If that proves optimistic, the whole valuation moves down with it.

• UK card arrears continuing to climb at the next set of results — particularly the 90-day figure moving beyond 0.3%, or Stage 2 loan balances starting to build. Stage flows are the tell; the headline loss rate lags.
• Coverage falling rather than rising. Coverage going from 1.4% to 1.5% while the loan buckets held flat is the reassuring detail in this half. Reverse it and the reassurance goes.
• The buyback slowing or pausing — because the per-share compounding is a large part of why I get to 750p. A CET1 ratio pushed below the 13–14% range by regulatory inflation would be the mechanism.
• The 2028 targets being softened. Right now the language is disciplined rather than promotional, and I like that. If greater-than-14% return on tangible equity quietly becomes "around 14%", the story has changed.
• The equities strength reversing hard. A weak trading quarter would test whether the investment bank is genuinely earning its capital or just enjoyed a good market.