If there was one phrase that could be the definition of ‘depressed’, it might easily be ‘UK banking stocks.’ The brokers are eternally hopeful the financial sector can regain its pre-crisis prowess, yet things just keep getting uglier and uglier for the banks. Now we’ve had the Brexit vote, what have the brokers got to hang on to? That petition to have it again, maybe?!

This post looks at how shares in Barclays could be on their way to becoming penny stocks. Here are some things that are working against the banks post-Brexit:

• Stimulus may have to be implemented by the Bank of England to curb an economic slump. That could include a rate cut, and low rates are one thing that’s hammered banks’ profit margins. Furthermore, the global uncertainty that Brexit has stoked means a US rate hike is now highly unlikely this year. The banks’ profit margins therefore stand to get even worse, with nowhere else to turn to try to boost revenues.
• A potential 20% fall in house prices will hit those financials that hold large mortgage books. Whether or not house prices do indeed fall (I hope they do, but I’m sure they won’t – that would be far too amazing a thing to happen to people who want to get on the ladder), the fear that they might could prompt investors to abandon the big lenders.
• With London and the South East set to suffer most from tanking property prices, Barclays and HSBC are most exposed of all the UK lenders.

Barclays (BARC)

The break below 147p on high volume (I wonder what caused that then…) was significant in confirming the continuation of the mid-2015 downtrend. This is therefore beginning to look very much like the second leg down in a bearish continuation pattern that could complete around 90p, making Barclays a penny stock just like its mortgage-heavy cousin Lloyds Banking Group (LLOY)!

You heard it here first, maybe.

Augustin Eden, Analyst (28 June)