Barclays May See Weaker Earnings Under McFarlane, Investec Says

Investors may be placing too much faith in John McFarlane to revive earnings at Barclays Plc, according to Investec Plc.

“We fear that ‘strategic acceleration’ may translate into even weaker earnings,” Ian Gordon, an analyst at Investec, wrote in a note to clients on Friday, when downgrading his rating on Barclays shares to a sell from hold. “Not since the halcyon days of the great Sir Bob Diamond have investors apparently been willing to put so much faith in one man.”

Barclays shares have increased after McFarlane, 68, barely two months into the job as chairman, ousted Chief Executive Officer Antony Jenkins last week and pledged to accelerate earnings growth. In targets presented to staff, he plans to double the bank’s share price over the next three years, people with knowledge of the matter have said.

Seventy-one percent of analysts rate Barclays a buy, while 23 percent have a hold. Analysts at Investec and Berenberg are the only ones with a sell recommendation on the shares.

“John McFarlane’s track record elsewhere is in our view outstanding, so we understand the broad rationale for investor enthusiasm,” Gordon wrote. “However, we believe Barclays’ relatively weak capital restricts its options.”

At 10.6 percent, Barclays had the lowest common equity Tier 1 ratio, a measure of financial strength, among major British banks at the end of the first quarter.

Jenkins’s abrupt departure mirrors former CEO Diamond’s exit three years earlier in the wake of a fine for rigging Libor. While Barclays eliminated thousands of jobs under Jenkins to help restore earnings battered by rising legal bills, McFarlane has signaled he’ll focus on revenue growth.

Barclays is scheduled to report first-half earnings at the end of July.

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