) has had some issues in Spain. In 2010, the company's annual
report cited impairment losses in Spain totaling £898 million
($1.45 billion) of its overall impairment loss of £5672 million -
representing a more than 15% share. The impairment of loans in
Spain was quoted by the company as the single biggest factor
dragging down the year's earnings figures. But the issues keep
popping up, with Barclays being forced to raise €1.3 billion ($1.9
billion) to continue its operations in Spain. The London-based
global bank competes with other worldwide banking institutions
and financial services group like Citigroup (
The Royal Bank of Scotland Group
), Bank of America (
), UBS (
Our price estimate for Barclays stock stands at
, a roughly 10% discount to market price.
The Situation in Spain
Spain is still reeling from a decade-long construction bubble.
During that time, the country's mortgage market was fueled by
companies and banks offering loans with tenures of 50 years, and
even offering options to defer down-payments for a couple of
But the housing bubble burst following the global economic
recession of 2008, leaving households with heavy debts loads that
are now shrinking with write-offs by banks and other financial
institutions. Economists expect more impairments in the coming
Barclays' Spain Connection
Barclays' corporate banking division has a significant presence
in Spain. The company reported in 2010 that it had significant
property and construction exposure in Spain, the reason for the
£898 million ($1.45 billion) impairment loss. Loans and advances by
Barclays to retail and wholesale customers in Spain were
valued at £25.6 billion ($41.3 billion) at the end of 2010.
To add to Barclays' woes, the Spanish government raised the
mandatory core capital ratio to 8% for all banks, in a bid
to restore people's confidence in its financial system.
Barclays needs to pump in at least €552 million to meet this new
How Can the Developments in Spain Affect Barclays' Stock
Barclays' had outstanding loans and advances to the tune of $417
billion at the end of 2010, implying that operations in Spain
represent 10% of this figure.
We believe the biggest impact of Spain on Barclays' stock value
would be seen if larger impairment losses shrink the company's
banking margins. If our current operating margin estimate of 17.5%
for 2011 drops to 15%, for example, it would imply 5% downside to
our $18.30 price estimate for Barclays stock, pushing our number
down to about $17.6o.
See our full analysis and $18.30 price estimate for