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Barclays’ investment bank is currently valued at nothing at all

Current state of Barclays' investment bank

Current state of Barclays' investment bank

Barclays’ investment bank used to be the jewel in the crown. Right now it looks like a piece of worthless coloured glass.

Analysts at Deutsche Bank point out that at Barclays’ current share price, the investment bank appears to be valued at zero. It doesn’t help that Barclays’ shares have fallen 15% so far in 2014 compared to other European banks: “At current market cap new investors get the Barclays IB for nothing if the rest of the group is valued in line with peers,” say Deutsche Bank’s analysts.

This is unfortunate. The nil-valuation for the investment bank has prompted calls or it to spin-out, or for the Lehman deal to be unpicked.  Analysts at Bank of America argued that last week that if Barclays detaches the US investment banking business gained from Lehman, it would offer an opportunity for the bank to ditch its global investing banking pretensions and to focus on its European client base.

Deutsche’s analysts thinking that lopping off the investment bank would be a mistake, however. They argue that in the medium term, spinning off the U.S. business or the investment bank in its entirety would be value-destructive.

For the moment, Barclays is suffering disproportionately from the expected weakness of its large fixed income trading business in the first quarter, when Deutsche revenues could fall another 30%. However, the German bank’s analysts argue that Barclays’ share price is already as low as it’s likely to go, that any bad news is already priced in and that investors should take a risk on Barclays at this point. After all, if the investment bank is worth zero things can hardly get any worse…

Exhibit One: Barclays’ share price 

Barclays share price horror

Source: Deutsche Bank

Exhibit Two: An investment bank for free?

Barclays for free

Source: Deutsche Bank

Exhibit Three: Be prepared for another dreadful quarter in FICC 

Barclays FICC

Source: Deutsche Bank 

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