Here is Why Barclays PLC (ADR) (NYSE:BCS) Got Upgraded at HSBC

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European banking stocks are undervalued amid challenging environment and low interest rates

Barclays Plc (NYSE:BCS) upgraded at HSBC Holdings from Hold to Buy ahead of the FOMC meeting by the Federal Reserve. Barclays rose the highest in the European markets after the Bank of Japan introduced further stimulus in its economy.

Analyst at HSBC said that the disposal of unwanted assets by Barclays is great for the British bank as it is creating value for itself. Barclays Have been successful is selling its non-core business since the chief executive, Jes Staley, took over the office last year. Mr. Staley directed the banks towards focusing on its core markets, UK and US. Moreover, several non-core businesses have been sold and still many deals are lined up in the coming weeks as banks face challenging conditions.

Barclays is set to sell its retail business in Italy along with few a credit card businesses in the Middle East. Several wealth management businesses in Asia are also in the pipeline to be sold. The bank looks to improve on Return on Equity by disposing off unprofitable assets and businesses. Barclays also found success in selling some of its African stake which had elements of political and foreign exchange risk.  

Mr. Staley’s strategy to simplify its business model is recognized by analyst at HSBC. Mr. Staley said in his earnings call: “The strategy remains the right one in our view. We will reduce our non-core drag by over a billion pounds from 2016 to 2017.”

Despite the declining year-over-year profits in the second quarter, Barclays stock rose on the earnings release. The stock is down almost 33% year-to-date; however, the stock is up 3.71% in pre-market on Wednesday. Majority of the analysts suggest a Buy on the stock due to its relatively better value against its peers. Banking stocks are also comparatively undervalued against the other sectors.

Barclays said that the Federal Reserve may surprise Wall Street by a rate hike on Wednesday. Theoretically, the banks prefer a rate hike for their own net interest margins.

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