JP Morgan hails Barclays's settlement with DoJ, keeps at 'overweight'

Analysts at JP Morgan stuck by their recommendation to 'overweight' on shares of Barclays after the lender announced that it had reached a settlement with the US Department of Justice.

In their opinion, the £1.4bn ($2bn) deal - which was at the low end of market expectations - marked a watershed moment in the lender's recovery story, likely heralding a shift towards increased capital returns.

Hence, the shares' risk-reward profile was still positive, they said, with Barclays's Tier-1 equity capital buffers also seen climbing from 13% at present to 14.5% by the end of 2020.

The settlement with the DoJ would likely also result in a "material" improvement in the group's PRA stress test performance.

Nonetheless, JP Morgan was not expecting any announcement on share buybacks until after the 2018 stress test results, which were expected in the last quarter of the year.

To take note of, some press reports had pegged the amount of its final settlement with the DoJ as high as $5bn.

JP Morgan left its estimates for Barclays's total litigation costs over 2018 to 2020 at £2.5bn, but with the bulk of those, to the tune of £1.5bn, now expected to be incurred this year.

The broker left its forecasts for earnings and dividens per share untouched, with the target price still at 250p.

"In terms of read-across, we believe that the cash settlement of $2bn may be seen as a helpful read across for RBS, but the lack of customer relief leaves some uncertainty remaining for RBS."