Barclays is among the big fallers so far after a sell note from Evolution Securities.
Analyst Arturo De Frias Marques said Project Merlin was good news for the banks, Barclays included (a view which critics of the deal would certainly agree with).
But there are other obstacles on the horizon which may not be so easily resolved, Evolution believes. De Frias Marques said:
The [Project Merlin] agreements are mostly as expected and seem very achievable for the banks. We think the agreement is good news if it helps to reduce political and media pressure.
The next obstacle in the race will be capital. And we feel this will be more difficult to negotiate. It has been our view for months that the new minimum Core Tier 1 in the UK will be 10%.
Recent newsflow has even increased the chances of this, in our view: the recent statements of Sir John Vickers, Chairman of the Independent Commission on Banking, seemed to suggest that a radical split of businesses is very unlikely, but substantially higher equity requirements are highly likely.
In our forecasts, only Standard Chartered and HSBC will be above or close to the 10% level under Basel III by the end of 2012. Lloyds, RBS and Barclays will be below. Barclays will show the lowest ratio, below 9%.
We still think it will be an uphill struggle for Barclays to get [to 10%]. Credit Suisse recently cut its return on equity target and we strongly believe that Barclays will be unable to generate returns above the 10-11% range in the medium term. After a strong rally in the last few weeks, the stock trades again close to its tangible net asset value (325p 2011 estimate), which remains the ceiling, in our view. We include the stock again in our core sell.
