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Barclays (LSE: BARC) shares misplaced additional floor Monday morning (2 March), after mortgage lender Market Monetary Options (MFS) collapsed final week amid allegations of fraud. Down 5% on the day on the time of writing, the Barclays share worth has now fallen 15% over the previous month.
Different UK financial institution shares have been weak, thoughts, so that is presumably solely a part of the dip.
Barclays, with investments in MFS, noticed irregularities within the days earlier than the lender slipped into insolvency final week. Allegedly there had been double-pledging of collateral occurring. And it’s led to additional fears surrounding asset-backed lending, which has been in a little bit of a growth.
Barclays was amongst these offering £2bn in financing to MFS. One other, US lender Jefferies Monetary Group, has seen its shares lose 29% in a month.
So what now?
We don’t know the way this may work out for Barclays. Nevertheless it sounds prefer it may need publicity of as much as £600m. The speedy lesson for me is — don’t be complacent with regards to banks.
Financial institution shares stormed forward over the previous couple of years. On the peak, Barclays shares had greater than trebled in worth in little greater than two years. Lloyds Banking Group, which I maintain, rewarded shareholders by greater than doubling in the identical timescale.
And, effectively, I used to be positively beginning to see the sector with too rosy a view. Banking sector all hunky dory now? Years of squeaky-clean earnings forward with not one of the shady enterprise of the previous ever going to emerge once more? Dream over.
It’ll occur once more
There aren’t any accusations of dangerous behaviour on the a part of Barclays itself right here. In actual fact, it appears it was one of many keen-eyed observers who helped pull the plug on this factor. Questions are already being raised, although, of poor underwriting requirements. And that is in a sector the place, within the US primarily, some regulatory requirements have been considerably loosened.
Wherever there’s cash to be made immediately from cash, enrichment makes an attempt by monetary companies may not all the time be, let’s assume, as prudent as we’d hope.
I haven’t forgotten the automotive mortgage mis-selling scandal that hit Lloyds so just lately. In actual fact, I used to be reminded of it this very morning by a leaflet from an area regulation agency touting for compensation enterprise.
And Barclays has racked up its personal share of regulatory monetary penalties over time for numerous misdeeds.
What ought to we do?
I’d say the important thing factor that we non-public traders can do is stay conscious of the inherent dangers of improper, and even fraudulent, behaviour in our chosen sectors. And keep in mind what an intricate tangled internet there may be connecting all types of economic establishments across the globe. It solely took a couple of tugs on a few of the strings to set off the 2008 banking collapse, keep in mind.
And with that in thoughts, I nonetheless intend to put money into monetary shares. And I nonetheless charge Barclays as a possible long-term money cow. I simply suppose traders would possibly wish to contemplate ready for this case to work itself out first, and see what the injury may be.
