Should I buy Barclays shares in this banking crisis?

Collapse of Silicon Valley Bank (SVB) and Credit Switzerland has led to a sell-off in many bank stocks. Barclays (LSE:BARC) is no exception, down 20% from this year’s high. But could this recent weakness be an opportunity for me to nab Barclays shares on the cheap?

Canary in the coal mine?

There is certainly a lot of fear about the financial sector. However, the recent weakness in bank stocks can be seen as an overreaction for several reasons. This is especially the case with British bank stocks like Barclays.

First, UK lenders have strict capital requirements. Thus, the deposit base is, naturally, less risky than its falling counterpart. This is because UK companies have less exposure to risk-weighted assets.

More importantly, the share of deposits from retail customers is higher than that of commercial ones. Thus, a liquidity crisis is more likely to occur as more funds are insured by the Financial Services Compensation Scheme (FSCS).

Banking on the backstop

Having said that, Barclays shares haven’t taken off in recent weeks. Therefore, it is a relief that the authorities are involved in trying to prevent the current situation.

The US Treasury is working to insure all US bank deposits in an effort to stop the bank’s operations. Meanwhile, the Federal Reserve cooperated closely with central banks from Europe, England, Japan, Canada, and Switzerland by allowing them to borrow US dollars to deal with liquidity problems.

One way, Goldman Sachs has reiterated the stance that UK banks are resistant. This has been supported by the fact that the Bank of England has not received offers from local companies for US dollars to maintain liquidity.

Are Barclays shares about to take off?

On that basis, Barclays shares may be oversold and could rise from here. However, the route back may not be smooth sailing. This is because there are other risks involved in investing in Barclays, such as its own regulatory issues which have long been its Achilles heel.

In addition, raising capital in the future may not be easy for the company. The evaporation of Credit Suisse’s AT1 bonds could discourage fixed income investors from buying the bank’s bonds. Therefore, buyers of Barclays shares could see their position diluted if the conglomerate chooses to raise capital through equity.

That said, it is not likely that FTSE 100 stalwart needs financing for the foreseeable future. This is due to our healthy asset base and liquidity. In fact, even reported an uptick in customer deposits since the beginning of the banking crisis, as customers flood to organizations safer to save money.

What’s more, at such a low valuation multiple, it’s easy to see why brokers are bullish on Barclays shares. Citi, UBSand JP Morgan all have a ‘buy’ rating on the stock. And with an average target price of £2.43, it is around 70% of its current level.

Pair the above with a strong outlook and a rebound in the investment banking division, and there are plenty of catalysts to push the stock higher. For these reasons, I would be interested in buying Barclays stock for its low valuation, upside potential, and forward dividend yield of 6.1%.