Barclays: priced for an 11% return, earning 12% to 14%, still not cheap enough

At 407p, Barclays trades at 0.99 times its tangible book value of 410p. A bank that earned 13.8% on that equity over the first nine months of 2026, and 12.4% over twelve months, is priced as if it will earn about 10.9% forever. That is the case for owning it. The case against is a short list: an administrator's claim over £160 million held for a collapsed lender, a motor finance provision of £430 million that a tribunal has yet to rule on, and a Bank of England look at how the bank classified private credit swaps.

At 407p on October 23, 2026, the shares trade 9.6% below my triangulated Base value of 450p, so the Base is 10.6% above the price. The Bear value of 284p is 30.2% below the price and the Bull value of 546p is 34.2% above it. The probability-weighted value of 433p (25% Bear, 50% Base, 25% Bull) is 6.4% above the price. The required margin of safety of 50% puts the maximum buy price at 225p, 0.55 times tangible book. For existing holders this is a hold. For new money it is a watchlist name.

Valuation route: Banks, a UK universal bank with retail, corporate, investment banking and US card businesses. Economic classification: 5 of 12 on the bank scorecard, the first point of the quality growth band, which does not change the method. Primary method: ten-year residual income on tangible equity, the sector method for a bank earning above its cost of equity. Cross-check: forward earnings multiple. Values are present fair-value estimates, not 12-month price targets.

What Barclays is

Barclays is a UK universal bank with five divisions: Barclays UK (retail and small business), the UK Corporate Bank, Private Bank and Wealth Management, the Investment Bank, and the US Consumer Bank, which is mostly credit cards. Net interest income was about £3.9 billion in the third quarter and has been about half of group income since 2023. UK lending grew 7% in the year (mortgages 7%, with £11 billion of gross lending in the quarter, and corporate and business banking 13% excluding run-off), and total deposits grew 3%.

The divisions do not earn alike. Three of the five earned between 21% and 24% on tangible equity in the third quarter. The Investment Bank earned 9.5%, below any reasonable cost of equity, and the US Consumer Bank 10.9%. The group figure of 11.7% is the blend.

Management is also cutting costs. It plans about 5,000 fewer roles (60% in support functions), more than £1.1 billion of gross efficiency savings in 2027, and total costs of about £18.4 billion in 2027 against about £18.5 billion this year. The Tesco Bank deal adds about £0.2 billion of savings, mostly in 2027 and 2028. Its 2028 targets are a return on tangible equity above 14%, a cost to income ratio in the low 50s, income growth above 5% a year from 2025 and at least £15 billion of capital returns over 2026 to 2028.

The latest quarter

Figures are as reported. Small other items sit between the lines, so income less costs less impairments does not equal profit before tax exactly.

Profit grew by double digits, but the quarter missed. Hargreaves Lansdown put the consensus at £7.6 billion of income and £2.4 billion of profit before tax, against £7.4 billion and £2.3 billion reported. Impairments of £503 million were below the £586 million expected, which flattered the result. The shortfall came from fixed income trading in the Investment Bank. Restructuring charges were £201 million. The shares fell 2.3% on results day to 409.45p and another 0.6% on Friday to 407.0p.

What the 13.8% return is made of

For a bank the measure that matters is profit on tangible equity after credit costs. The nine-month figure of 13.8% is higher than the third quarter's 11.7% for reasons that will not repeat in full. The US Consumer Bank's 19.9% for the nine months includes a gain of about £225 million on the sale of the American Airlines co-branded card portfolio in April, which also released £3.6 billion of risk-weighted assets; management expects that division to earn about 12% for the year without it. I treat that gain as one-off and leave it out of my forward earnings. Group impairments were £1,897 million in the nine months (up 9%, a loan loss rate of 55 basis points), and management puts the full year at the top of its 50 to 60 basis point range. It expects a loan loss rate of about 30 basis points in Barclays UK in the fourth quarter, against 20 in the third. The sensitivity is large: every extra 50 basis points of loan losses on a book of about £480 billion costs roughly £2.4 billion before tax and about 13p of earnings per share after tax, or a quarter of a year's earnings, so the 57p of 2027 earnings I use is not a floor.

The credit book looks stable on the one measure I could check: the total coverage ratio was 1.2%, unchanged. I could not find Stage 3 (defaulted) balances or a non-performing loan ratio, and that matters most in the US card book, where management expects a loss rate of about 550 basis points for the year. Charges in the first quarter included £228 million on a single Investment Bank exposure, which is covered below.

Capital, funding and shares

The common equity tier 1 (CET1) ratio was 14.2% at September 30, equal to £52.4 billion on £369.8 billion of risk-weighted assets, and 14.0% after the new £500 million buyback. The target range is 13% to 14%, so the bank is at the top of it. From January 1, 2027, the Basel 3.1 rules are expected to add £8 billion to £15 billion of risk-weighted assets (30 to 55 basis points of CET1). A lower Pillar 2A requirement, which cuts the distribution threshold (MDA) from 12.2% to 11.6%, offsets more than that, according to management. The UK leverage ratio was 4.9% and the MREL ratio 35.2% against a requirement of 30.5%.

There were 13,379 million shares at September 30, down 4.4% from 13,996 million a year earlier. Buybacks since 2023 total £5.8 billion and cut the share count by 12%. Tangible book value per share was 410p, which gives tangible equity of £54.9 billion (my arithmetic) and a market value of £54.5 billion at 407p. I did not find a diluted share count, so I use period-end shares and test a 1% dilution below.

Tangible book per share is the number to watch. It was 357p at the end of 2024 and 409p at the end of 2025, then 423p at the end of June 2026 and 410p at the end of September. The year-to-date bridge is disclosed: earnings per share of 43.0p were offset by a 24p drag from the cash flow hedge reserve and a 15p net reduction from buybacks and dividends, which leaves about 413p against the reported 410p, so roughly 3p is unexplained. In other words, nine months of profit did not grow value per share, because falling hedge values and capital returns absorbed it. A hedge reserve move is a revaluation, not a new bad loan, and it can reverse when rates fall. It still counts against holders for now. The quarterly path (423p in June to 410p) is not bridged in the sources I read, so the link between the 13p fall and the hedge reserve is my inference. The valuation starts from the reported 410p.

Capital returns are large. Distributions in 2026 are £2.8 billion so far (up 47%), with a planned dividend of £2.0 billion for the year and £2.5 billion of buybacks including the new £500 million. Together that is £4.5 billion, or 8.3% of the market value (my arithmetic). That is a payout measure, not an extra return on top of the valuation: the model already counts buybacks through a lower share count and lower capital, and a buyback at 407p to 440p, above the 410p tangible book, trims tangible book per share slightly instead of adding to it.

Primary valuation: residual income

The sector method for a bank that earns more than its cost of equity is residual income: value equals tangible book value plus the present value of profits above the cost of equity. I model the fourth quarter of 2026 and four more years explicitly, fade the return over five further years and then assume a terminal period.

Base case inputs, all estimates unless stated:

• Cost of equity of 11%: the 10-year UK gilt yield of 5.37% on October 23 plus about 5.5 points of equity risk premium (a beta near 1.1 times 5%), rounded.
• Starting tangible equity of £54.9 billion. It grows 0.5% in the fourth quarter and 3.5% a year after that, in line with lending and risk-weighted asset growth. That leaves a payout of about £5.5 billion in 2027, 74% of profit, in line with the £15 billion plan over three years.
• Fourth quarter 2026 income and costs implied by management's full-year guidance (£31.5 billion and £18.5 billion), with impairments of £800 million, about 70 basis points, because the full year is guided to the top of the range.
• 2027 and 2028 built from income, costs and a loan loss rate of about 57 basis points. Costs for 2027 follow guidance (£18.4 billion). Income growth is 1% in 2027 and 2.5% in 2028, below the 5% a year target.
• Attributable profit at 69.6% of profit before tax, the actual ratio for the first nine months.
• A return of 13.0% in 2029 and 2030, fading to 11.5% by 2035, then terminal growth of 2.5%.

The first nine months plus my fourth quarter give 2026 attributable profit of £7.2 billion, a return of about 13.2% and earnings of 53.2p a share, above the guidance of a return over 12%. My 2028 return of 13.7% is below the management target of more than 14%.

This gives 465p: 410p of tangible book, 42p from returns above 11% to 2035 and 13p from the terminal period. The terminal period is 2.7% of the value, and the explicit and fade years cover 9.25 years, so the answer does not hinge on the far future.

Secondary valuation: forward earnings

The cross-check uses next year's earnings and a market multiple. My 2027 attributable profit of £7.40 billion, divided by an average of 12.97 billion shares (£2.5 billion of buybacks a year at about 440p, my estimate), gives 57.1p a share. That is 7.3% above my 2026 estimate of 53.2p. At 7.5 times, the 10-year average forward multiple quoted by Hargreaves Lansdown (a third-party figure I could not verify), the value is 428p.

The multiple needs a reason, not just a tier. At an 11% cost of equity and a payout of 74% of profit, 7.5 times means earnings that grow about 1.1% a year forever. That is below the 2.5% I use for the terminal period and below the 3.5% growth of equity in the explicit years, so the multiple already assumes the return fades. At 6.5 times the value is 371p and at 8.5 times 485p. Barclays trades at 7.9 times trailing earnings (51.7p over the last twelve months, my arithmetic) and 7.7 times my 2026 estimate.

Both methods value the equity directly, so they share a common basis: no enterprise value bridge, debt or lease adjustment is needed.

The two methods are less independent than they look:

• Shared: my 2027 profit of £7.40 billion and the share count. A wrong profit estimate moves both values.
• Different: residual income charges 11% on all equity and values years out to 2035, while the earnings multiple uses a market multiple that does not depend on my cost of equity.
• What follows: the two values sit 8.2% apart, which is consistent, not independent confirmation. I did not raise the confidence score because of it.

Historical cross-check and growth diagnostic

I could not verify a price to tangible book history for Barclays, so that part of the historical check is not available and gets no weight. The shares are 24% below their 52-week high and 7.6% below their level at the end of September, which says the market has marked down the legal and regulatory risk, not that the stock is cheap.

The growth valuation check is a diagnostic only. Forward PEG, the price to earnings ratio divided by earnings growth, is about 1.0 on my numbers (7.1x on 7.3% growth in 2027). The 21% growth in 2026 earnings per share is flattered by a one-off gain and a falling share count, so I do not use it. Growth durability: normalizing. Cyclical distortion: medium, because credit costs are low in the cycle and the structural hedge, which earns an average swap rate of 4.2% against a 3.5% plan, is a rate-driven gain. This check does not set fair value. The free cash flow growth check does not apply to a bank.

Valuation triangulation

The two methods diverge by 8.2%, below the 20% level that would raise a flag. Residual income gets the larger weight because it is the sector method and does not borrow the market's own multiple. The unweighted values are 465p and 428p, so the weighted figure is a point inside a 37p range, not a narrower answer. Across a cost of equity of 10% to 12% the triangulated value runs from 488p to 420p.

What is the market already pricing in?

I ran the residual income relationship backwards. A bank is worth (return minus growth) divided by (cost of equity minus growth) times tangible book. At 407p, which is 0.99 times tangible book, a cost of equity of 11% and growth of 2.5%, the return must be 10.9% a year forever. At a 10% cost of equity it is 9.95%, and at 12% it is 11.9%. Barclays has earned 11.7% to 13.8% this year and targets more than 14% by 2028.

Put differently, 407p is 3p less than tangible book, so the market gives the franchise no value. On my Base path, the price equals the value at a cost of equity of 12.2%, so buying at 407p returns about 12.2% a year against my 11%, an informational figure and not a forecast. That spread of 1.2 points is positive but thin for a bank with open legal cases.

Bear, base and bull scenarios

Bear: a credit cycle in US cards and UK unsecured lending plus another large single-name loss, weaker fixed income trading and stickier costs push the return to about 9% to 10%, below the cost of equity. Base: costs follow guidance, the loan loss rate stays near 57 basis points and the return reaches 13% to 14% before it fades. Bull: management delivers its income growth target, costs fall to £18.2 billion in 2028 and the return reaches 15%. The cost of equity (11%), the 2.5% terminal growth and the equity growth rate are the same in all three cases, so the scenarios differ only in operating performance and no risk is counted twice. In the Bear, the terminal return is 9.0%, below the cost of equity, so the franchise is worth less than book.

Sensitivity: residual income value per share

The grid is the honest picture of the model: the price of 407p sits at a cost of equity of 11.5% with a terminal return of 10.5%, a combination that is neither pessimistic nor generous. The cost of equity matters more than any single year of earnings.

How the buy price is set

Confidence C starts at a 35% margin of safety, the low end of the range, because Barclays is regulated, reports in detail and holds capital at the top of its range. Five points are added for cyclicality (credit costs and investment banking income) and ten for binary legal and regulatory risk: the motor finance ruling, the MFS claim and the Bank of England review. Nothing is added for opacity, because the private credit item is already in the legal and regulatory ten, and nothing for divergence, which is 8%. That gives 50%. A 50% discount to the 450p Base gives a maximum buy price of 225p, 0.55 times tangible book.

Across reasonable single changes to the inputs the maximum buy price runs from about 190p to 270p, and the verdict is hold in every case: even the top of that range is 34% below the price. The risk ledger is simple. Credit cycle risk is in the Bear scenario and the cyclicality modifier, and not in the cost of equity. Legal and regulatory risk is only in the margin of safety, because the Base assumes no charge beyond the £430 million already booked. Dependence on terminal value is 2.7% of the value and is not priced anywhere. A margin this large is a statement about uncertainty, not a forecast that the shares will fall to 225p.

Dividend and buybacks

The dividend for 2025 was 8.6p a share, and the interim dividend for 2026 is 5.9p, against 3.0p a year earlier. Management plans £2.0 billion of dividends for 2026, about 14.9p a share on 13.4 billion shares (my arithmetic), which would be a yield of 3.7% at 407p and means a final dividend of about 9p. Buybacks announced in 2026 total £2.5 billion. The trailing yield shown by data providers, about 1.8%, understates the payout because the 2026 dividend is larger. Barclays plans at least £15 billion of capital returns over 2026 to 2028.

Reasons to own BARC

• Price at book, return above cost. The shares trade at 0.99 times tangible book while the bank earned 12.4% over twelve months and has a target above 14% for 2028. The price implies 10.9% forever.
• Large capital returns. The 2026 plan returns about 8.3% of the market value, the share count is down 12% since 2023 and CET1 is still 14.0% after the latest buyback.
• Strong domestic franchises. UK lending grew 7%, three divisions earned 21% to 24% on tangible equity, and UK corporate deposits are £220 billion.
• A cost programme with numbers. About 5,000 fewer roles, more than £1.1 billion of gross savings in 2027 and costs guided to £18.4 billion.
• Rate support. The structural hedge earns an average swap rate of 4.2% against a 3.5% plan, and management expects the hedge income to keep growing to at least 2030.

What could go wrong?

• The MFS collapse. Barclays was owed about £500 million by companies linked to Market Financial Solutions (a Bloomberg estimate from March) and took a £228 million single-name charge in the first quarter. The company's administrators filed a High Court claim on July 31 to recover part of more than £160 million of cash that Barclays holds for them. Barclays says it will defend the claim.
• Motor finance. The provision is £430 million, unchanged since June after a £105 million increase in the first quarter. The Upper Tribunal suspended parts of the FCA redress scheme after four legal challenges, and hearings are due in the first quarter of 2027. Management says the outcome and the timing remain uncertain.
• Private credit swaps. Reuters reported on October 19 that the Bank of England is examining whether traders misrepresented illiquid private credit loans to understate their risk, which affects capital treatment. The shares fell 2.7% that day. Management put the mark-to-market of the total return swaps at about £300 million and said the trading book treatment is unchanged under Basel 3.1. A capital add-on is the risk.
• The Investment Bank. It earned 9.5% in the quarter and 13.5% over nine months, and income per unit of risk-weighted assets fell 20 basis points to 6.1%. Weak fixed income trading caused the quarter's miss, and leveraged finance marks cost £39 million.
• US cards and UK deposits. US Consumer Bank losses run at about 550 basis points and costs rose 14% in the quarter. In the UK, competition for deposits, especially term deposits, raises funding costs and pressures the margin.
• Execution and capital rules. Cost cuts of this size can slip, and Basel 3.1 adds £8 billion to £15 billion of risk-weighted assets from January 2027, and about £11 billion more is expected in the second half of 2027 when the US Consumer Bank moves to an internal-model approach, so £19 billion to £26 billion in total. Tangible book value is also sensitive to rates, as the 24p hedge reserve drag so far this year shows.

Management execution

Management has delivered against its targets: a 2025 return on tangible equity of 11.3% against guidance of more than 11%, a 2026 return of 13.8% over nine months against guidance of more than 12%, income guidance raised to £31.5 billion at the half year and a share count down 12% in three years. It has also cut its Pillar 2A requirement and kept CET1 inside its range while returning more. Against that, the MFS exposure became a £228 million charge that an exposure of this size should have flagged, the motor finance provision has grown from £325 million to £430 million, and restructuring charges (£201 million in the third quarter) keep coming. Management credibility scores 13/20, good.

Stock Analyza scorecard

The valuation score is 47/100: discount to Base 14/40, protection against the Bear 9/20, agreement between methods 9/15, historical valuation 5/10, market implied expectations 7/10, data and model penalty 3/5. The price is fair, not cheap.

A score of 5 is the first point of the quality growth band, one point above a standard company. For a bank this does not change the method, which is residual income either way, so the label does not move the numbers.

Confidence score

Several inputs I wanted are not available (Stage 3 balances, a diluted share count, the quarterly tangible book bridge, a peer table), which caps the grade at C.

What I would watch from here

Tangible book per share is red today, and four other readings are yellow, which is another reason the verdict is not a buy. The next review points are the Basel 3.1 start on January 1, 2027, the full-year results (the last ones came on February 10) with the update of the CET1 operating level, and the Upper Tribunal hearings in the first quarter of 2027.

The three most important thesis breakers

1. A second single-name loss on the scale of MFS (£228 million) together with a loan loss rate above 70 basis points.
2. A legal or regulatory outcome that adds more than £500 million of charges, or a capital add-on from the Bank of England on the private credit swaps.
3. A 2027 return on tangible equity below 12%, which would mean costs above £18.4 billion or income that has stalled.

Stress test and independent check

I built this analysis from the primary results announcement for the third quarter of 2026 (as published through the regulatory news service), the earnings call transcript and the interim and full-year summaries. The reported figures in the tables come from there. The market price and tangible book per share are reported figures; the price is confirmed by three data providers (407.0p, 0.6% below the 409.45p close on October 22), and a broker's after-hours quote of about 405.5p is not an exchange close. Estimates are the fourth quarter of 2026, the 2027 and 2028 income, costs and loan loss rates, the cost of equity, the share count path, the 7.5x multiple, the scenario inputs and the scores.

The strongest counter-argument is that Barclays is simply cheap. It earns 12% to 14% on equity that the market values at par, returns 8% of its value a year and has a cost programme with a date. The Bull case is plausible, and on my Base path a buyer at 407p earns about 12.2% a year. I hold the verdict at hold because three legal and regulatory cases are open, the credit and tangible book data I wanted are incomplete, and the model's answer moves 100p across the plausible range of the cost of equity. Single changes keep the Base between 412p and 489p, so the maximum buy price stays between 206p and 244p and far below 407p every time.

The most generous combination is the Bull operating path, a 10% cost of equity, a 13% terminal return and 8.5x on Bull earnings. The most cautious is the Base path with a 12% cost of equity, a 9.5% terminal return and 6.5x. Even the generous case gives a maximum buy price of 295p, below the price. I tested both directions of bias. My choices that lean cautious are the gilt-based cost of equity, a 2028 return below management's target and fourth-quarter impairments at 70 basis points; those that lean generous are using period-end instead of diluted shares and guidance-implied fourth-quarter income. Using management's targets raises the Base by 19p. The 13p fall in tangible book in the third quarter, which the year-to-date bridge only partly explains, is the item I would most like to resolve before changing the verdict.

Final verdict: hold at 407p, watchlist for new money

Barclays is a sound bank priced fairly. It earns more than its cost of equity, returns about 8% of its value a year and has a cost plan with a date. But the 10.6% gap between the price and the 450p Base is too small to pay for a legal tail that has three parts and no ruling yet.

Verdict: HOLD at 407p, watchlist for new money. Triangulated Base value 450p, 10.6% above the price, Confidence C (14/25). Required margin of safety 50%, maximum buy price 225p.

For an existing holder, what matters is the 407p the shares are worth today, not what they once cost, and at that price the returns and the capital return support holding. New money waits for 225p or below, or for evidence that returns stay above 12% while the tribunal, the MFS claim and the Bank of England review are decided.

The main thesis breaker is a second large single-name loss while the loan loss rate rises. At 407p you are not paying for Barclays to be good; you are paying for it not to get worse, and that is exactly what three open cases make hard to promise.

Sources

Primary sources include Barclays' third quarter 2026 results announcement, the Q3 2026 earnings call transcript and a summary of the call. Full-year 2025 figures come from this results summary and half-year 2026 figures from this report. Consensus comparisons and the 10-year price to earnings average come from Hargreaves Lansdown.

The market price comes from TradingView, AJ Bell and Digrin; the close on October 22 is from a Simply Wall St note and the results-day move from a market report. The gilt yield is from Trading Economics. On MFS: City AM and Bloomberg Government. On the Bank of England review: this report. The cost of equity, the share count path, the earnings multiples, the scenario figures and the scores are my own calculations or estimates, labeled as such.

The reference market price is 407.0p, the October 23, 2026 regular session close. Balance sheet figures are as of September 30, 2026.