Barclays (LSE: BARC) shares have risen by more than a third over the last year putting them among the strongest performers in the FTSE 100. Yet despite the rally, I still think many investors may be viewing the bank through an outdated lens.
For years, the blue-eagle bank was treated as a cyclical interest-rate trade. But increasingly, the story may be shifting towards something more durable — and that could matter for where the shares go next.
A structurally stronger bank
What stands out to me is that Barclays increasingly looks like a stronger bank operationally, not simply one benefiting from favourable conditions.
First-quarter results pointed in that direction. Group income rose 6% to £8.2bn while return on tangible equity reached 13.5%, despite one-off charges and a period of elevated market volatility. The cost-to-income ratio also improved to 56%, helped by ongoing efficiency measures.
Importantly, strength was broad-based. All five divisions generated double-digit returns, with particularly strong performances in the UK businesses, the US consumer bank and investment banking operations.
I also think the diversification of earnings matters more than many investors appreciate. Investment banking delivered more than £4bn of quarterly income for the first time, while the structural hedge now has £18.3bn of future income locked in through 2028, helping reduce earnings volatility.
To me, this looks less like a bank enjoying a good quarter and more like one beginning to deliver the benefits of a multi-year restructuring effort. But can that translate into stronger shareholder returns?
A different approach to returns
Barclays is not trying to compete with higher-yielding UK banks purely on dividends. The current yield remains relatively modest.
Instead, what I see is a bank increasingly focused on total shareholder returns and disciplined capital allocation.
The 14.1% CET1 ratio supports plans to return at least £15bn to shareholders by 2028, including the latest £500m share buyback.
That matters because buybacks only create value when supported by sustainable capital generation and sensible risk management.
Recent actions suggest a more cautious lending posture too. The group has tightened exposure to certain structured finance counterparties and is reducing lending to more leveraged borrowers where risks appear less attractive.
To me, this reflects a notable shift in priorities. Rather than pursuing growth for its own sake it appears increasingly focused on protecting capital, improving returns and allocating resources more selectively.
What’s the verdict?
Of course, risks remain. The business has meaningful exposure to market activity and the investment banking cycle, which can make earnings less predictable than some domestic-focused peers.
A weaker economy could also pressure loan growth and impairments, particularly if unemployment or corporate stress rises. While credit quality currently appears stable and lending standards are tightening, delivering returns above 14% by 2028 will depend on maintaining discipline through less supportive conditions.
I do not currently own the shares, largely because I already have significant exposure elsewhere in financials and tend to avoid adding after strong runs. Even so, with improving returns, disciplined capital allocation and a clear long-term plan, I think Barclays remains one to consider.
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Andrew Mackie does not hold any positions in the companies mentioned.
