Barclays’ share price rallies: opportunity or risk for investors?

The Barclays (LSE: BARC) share value has loved a robust run in latest months, supported by regular income, share buybacks, and strong web curiosity revenue. But, with excessive mortgage prices and family funds underneath stress, traders could wonder if this momentum can proceed – or if optimism is already totally priced in.

Q3 outcomes

Earlier within the week, the blue eagle financial institution reported a robust set of quarterly outcomes. Group revenue rose 11% 12 months on 12 months to £7.2bn, pushed by a resilient UK enterprise and bettering momentum within the US.

Secure deposits and strong UK lending resulted in a surge in web curiosity revenue (NII) of 16%, prompting administration to lift full-year 2025 NII steerage to greater than £12.6bn.

Regardless of each enterprise division delivering a double-digit return on tangible fairness (RoTE), the group RoTE fell from 12.3% to 10.6%. This decline was largely as a consequence of two components:

1. An 8% enhance in tangible fairness (guide worth), which raises the denominator of the RoTE calculation.
2. A one-off impairment of £235m regarding a motor finance provision.

I’m not overly involved about this fall in RoTE, since administration continues to be guiding for a return of greater than 12% by 2026.

Structural hedge

A very powerful driver of NII stays the structural hedge. This smooths revenue over time by investing buyer deposits into fixed-rate devices.

A key enabler of the hedge is steady buyer deposits, which permit the financial institution to take a position a good portion of this money into longer-term, higher-yielding property. Consider it like a jar of money incomes a set fee over a number of years.

At Q3, the entire hedge stood at £233bn, with a mean length of three.5 years and a mean yield of round 3.8%. As older, lower-yielding hedges mature, they’re changed by higher-yielding ones. So even when rates of interest fall, Barclays has successfully locked in elevated revenue for a number of years.

Financial well being

Within the wake of Covid, governments flooded the UK and US economies with liquidity. Over time, lower-income households have drawn down these extra financial savings, however wealthier cohorts – who maintain a bigger share of financial institution deposits – stay cash-rich.

On the similar time, rising inventory and property costs have inflated asset values, enabling greater earners to maintain spending and propping up demand throughout the economic system.

Banks, for now, sit in what I describe as a ‘candy spot’: stability sheets are sturdy, impairments are low, and margins stay extensive. However the query is how lengthy this will final.

Every quarter, extra debtors are refinancing debt at greater charges. This gradual repricing is sort of a slow-moving wave — or perhaps a tsunami — constructing beneath the floor. Greater mortgage prices will squeeze customers, companies will face bigger curiosity payments, and governments will battle with mounting debt-service burdens.

Backside line

For me, the dangers are beginning to stack up. That doesn’t imply Barclays isn’t an excellent enterprise, or that its shares can’t go greater within the quick time period. Nevertheless it does counsel the very best of the interest-rate windfall could already be behind us.

Buyers chasing the rally ought to keep alert to the lagged results of upper charges, which can ultimately present up in credit score losses, slower deposit development, or weaker shopper sentiment.

For now, I’m impartial on Barclays. It’s a well-managed financial institution, however I see higher risk-reward alternatives elsewhere available in the market.