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Barclays (LSE: BARC) shares look surprisingly cheap compared to many UK banking stocks at the moment.
The company’s shares are trading at a price-to-book (P/B) ratio of 0.7 as of writing on March 17. Currently, HSBC shares sit at around 1.4 by the same metric.
It’s the same story for loved ones Lloyds again NatWestboth trade at a multiple of about 1.2.
So on paper, Barclays shares look like the perfect deal for the sector. But is there a reason behind the steep discount or is it hiding in plain sight?
The stock price recently dropped
Barclays shares have been performing well recently. The stock price is still up 33% over the past 12 months and 115% over the past five years.
However, it is clear that some doubts are starting to creep in. The stock took a hit despite strong earnings and returns to shareholders.
Recent worries about what’s lurking in its loan book appear to be problematic. Investors were alarmed by the company’s exposure to the failed Market Financial Solutions (MFS) lenders.
One reason for a large discount could be concerns about the true book value of its assets.
Is the anxiety excessive?
Although the stock is under pressure, it is not all doom and gloom for investors. In fact, the headline numbers remain strong.
The company reported a 12% increase in 2025 profits, with an 11.3% return on tangible equity (ROTE) and a 14.3% Common Equity Tier 1 (CET1) ratio.
Compare those key ratios with HSBC. That bank reported a 13.3% ROTE rate for 2025, with a 14.9% CET1 rate. Both valuations look strong, which would justify a premium relative to Barclays, but the discount on a P/B basis looks steep.
Of course, HSBC is not without risk either. The company’s 2025 results showed an increase in expected credit losses, and management began to restructure its operations.
The question for investors to consider is whether HSBC’s perceived stability is worth the significant premium compared to Barclays.
Return of stockholders
Then there are shareholder-friendly policies. Barclays is targeting more than £15bn in cash distributions by 2028.
Those kinds of figures are not what I would expect from a company under stress and a weak balance sheet.
The 0.7 P/B multiple as I write means that investors value the company at a significant discount to its peers and the book value of its assets.
If there are no other problems with the loan book, this could represent a great opportunity for investors to capture that value.
However, discounts are often there for a reason and the quality of the goods deteriorating can cause major headaches.
My decision
Barclays shares trade at a steep discount to other bank stocks including HSBC.
However, booking price multiples are not the only metric to consider. Investors are clearly spooked by MFS exposure and are worried about asset quality. I certainly think the stock is one for investors to consider further given the valuation gap.
If other credit quality issues arise that would justify a peer discount. However, if the loan book holds, the company could be temporarily cheap, making it a potentially attractive opportunity.
