Investec, the stock research arm of Barclays Bank, is making a strong recommendation to buy Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) as it notes “discriminatory regulatory behavior” as a potential risk to the stock price.

Investec notes Barclays underlines performance beat

In a report titled “And now you’re gonna believe us…the tNAV’s going up!” the research arm of the bank noted a 25 percent underlying performance “beat” relative to consensus earnings estimates. Although the bank is facing adverse currency translations and announced Spanish issues, the report says “fear not,” as it sees “attributable profit of £0.1bn, but with a positive currency reserve move of +£0.9bn. As such, we see the [net asset value] rising 5p to 284p.”

Barclays tNAV

What does this mean?

“Buy,” the report recommends, as it sets a 295 pence price target for the stock, noting its belief that expectations have been suitably “managed” for a soft Q3 revenue performance in the “core” Investment Bank.

Barclays buy division profit

Barclays revenue expected to fall

In the third quarter of 2014, Investec predicts the bank will most likely profit from traditional personal and corporate followed by its investment banking division, which is nonetheless expected to fall significantly in revenue when compared to the actual second quarter revenue spike the investment bank had witnessed.  Revenue from Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) is further expected to drop in the fourth quarter of 2014 while personal and corporate banking is projected to remain steady.

Barclays Earnings

When considering the risks in buying the stock, the research report listed the geopolitical climate and “discriminatory regulatory behavior.”

Looking forward, the report says there is “significant uncertainty,” as it cites a recent and apparently favorable ruling in Barclays PLC (ADR) (NYSE:BCS) (LON:BARC)’s ongoing dispute with the Lehman Bankruptcy Trustee. The report, however, said that “incremental conduct risks are plentiful,” with potential involvement in any multi-bank Foreign Exchange settlement likely to be a “more material items.”

Barclays Litigation

The report says the recent cumulative £6.35 billion regulatory fines “may yet prove sufficient,” and the report said it was “encouraged that management has indicated a willingness to take a firm line where it believes U.S. regulators’ claims are unjustified.”  In other words, it was not going to lay down and simply give in to U.S. regulators regarding claims of criminality at the bank.

Barclays dispute with U.S. regulators

The research report was clear on the issues that the bank may fight U.S. regulators. “In particular, Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) has (thus far) taken a trenchant stance against what it sees as spurious claims brought by the US Federal Energy Regulatory Commission (FERC) seeking $470 (million) plus interest for alleged manipulation of electricity markets in California,” the report said, then cited another regulatory in the news, the complaint filed by the New York State Attorney General relating to its “dark pools.”

Barclays shareholder equity

The report noted that the New York Attorney General is contesting Barclays PLC (ADR) (NYSE:BCS) (LON:BARC)’s motion to dismiss what it regards as a complaint based on “significant and factual errors.”  Barclays appears to take this fight to heart, declaring a “duty to our shareholders, clients and colleagues to defend our position.”