London, 27 September 2017 -- Moody's Investors Service ("Moody's") has today
affirmed the Baa2 long-term issuer and senior unsecured debt ratings
of Barclays Plc (Barclays). Moody's has also affirmed the
A1 long-term deposit and senior unsecured debt ratings of the group's
main operating entity Barclays Bank PLC (Barclays Bank), its baa2
baseline credit assessment (BCA) and the A1(cr)/Prime-1(cr) Counterparty
Risk (CR) assessment. All other long- and short-term
ratings for Barclays and Barclays Bank were affirmed at their current
levels.
"Barclays Bank is now better positioned to face a modest worsening
of the operating environment in the UK, given its improved asset
quality and capitalisation," said Mr. Andrea Usai,
a Senior Vice President at Moody's. "Moody's
expects the bank will maintain its sound funding and liquidity,
enabling it to withstand unexpected market shocks."
Moody's has also kept a negative outlook on the credit ratings for
Barclays and Barclays Bank, to reflect its expectation that the
group will continue to face profitability challenges over the next 12-18
months. The outlook also takes into account, for the first
time, Moody's assessment of the impact of UK structural reforms
("ring-fencing") on Barclays Bank.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_197510
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_197510
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Principal Methodology
The affirmation of the baa2 BCA for Barclays Bank reflects the group's
(1) strong franchise in UK retail, business banking and global credit
cards, (2) strong loan quality, which is partly offset by
the challenges resulting from the residual restructuring, including
the wind-down of a sizeable (though rapidly declining) legacy asset
portfolio, (3) improved regulatory capitalisation, which in
Moody's view could still prove volatile as the group completes its
restructuring and addresses legacy litigation and conduct issues;
and (4) adequate funding and sound liquidity.
However, Barclays Bank's baa2 BCA is constrained by the group's
weak profitability, which Moody's expects to persist over
the next 12-18 months, as well as the risks stemming from
the group's sizeable capital markets activities carrying market,
counterparty and operational risks which may expose the firm to higher
earnings volatility.
The rating agency has also assessed that Barclays Bank is now better positioned
to face a modest worsening of the operating environment in the United
Kingdom (Aa2 stable), given its improved asset quality and capitalisation.
Moreover, Moody's expects the bank to continue to maintain
sound funding and liquidity, which would enable the bank to withstand
unexpected market shocks.
Moody's advanced Loss Given Failure (LGF) analysis indicates an
extremely low loss-given-failure for junior depositors and
senior unsecured creditors of Barclays Bank, resulting in a three-notch
uplift in the relevant ratings, from the firm's Adjusted BCA of
baa2. For the senior unsecured creditors of Barclays, the
advanced LGF analysis shows a moderate loss-given-failure,
resulting in no uplift from the bank's Adjusted BCA of baa2.
Moody's revised Banks rating methodology, which takes into
account its expectation of a more forward looking issuance of bail-in-able
liabilities to achieve compliance with the Minimum Requirements for Own
Funds and Eligible Liabilities (MREL), does not result in any additional
notch uplift for the ratings of Barclays or Barclays Bank, given
the group's current liability structure and medium-term funding
plan.
Moody's has maintained its assessment of moderate probability of
government support for Barclays Bank's junior depositors and senior
unsecured creditors, resulting in a further one-notch uplift
incorporated in the relevant A1 ratings.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook on the credit ratings for Barclays and Barclays Bank
reflects two separate factors. Firstly, Moody's expects
Barclays to continue to face profitability challenges over the next 12-18
months, as it addresses legacy conduct and litigation issues,
and completes its restructuring. The latter includes the disposal
or wind-down of its large residual non-core asset portfolio
of GBP233 billion at end-June 2017, corresponding to around
20% of the group's total assets and 7% of the group's
total risk-weighted assets, as of the same reporting date.
Secondly, Moody's has assessed that the existing creditors
of Barclays Bank will face higher expected losses than currently,
due to its weaker standalone credit profile, following the implementation
of ring-fencing by 1 January 2019.
During 2018, Barclays Bank will become the group's non-ring-fenced
bank (NRFB) and its existing UK retail and business banking activities
will be transferred to the newly formed ring-fenced bank (RFB).
Barclays Bank will thus become more reliant on corporate banking and capital
markets activities, despite maintaining certain activities,
such as international cards, private banking and payments.
As such, the scope for earnings volatility will increase for the
NRFB, which will also be more reliant on confidence-sensitive
wholesale funding, leading to a weaker standalone credit profile.
WHAT COULD MOVE THE RATINGS UP/DOWN
The negative rating outlook on Barclays and Barclays Bank indicates that
rating upgrades are unlikely over the next 12-18 months.
The outlook could be changed to stable from negative if Barclays were
to make material progress on its restructuring and legacy conduct and
litigation issues, reducing the associated downside risks and restoring
its profitability on a sustained basis.
Barclays Bank's standalone BCA could be downgraded, following
the transfer of its existing retail and business banking activities to
the RFB. As we stated previously, the BCA could also worsen
in case of: (1) a deterioration in the operating environment beyond
Moody's current expectations, (2) conduct and litigation changes
that are materially higher than Moody's current expectations,
(3) an increase in risk appetite or leverage, and (4) a material
deterioration in the group's liquidity or capital positions.
A lower BCA would likely lead to a ratings downgrade.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_197510
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Lead Analyst
• Releasing Office
• Person Approving the Credit Rating
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Andrea Usai
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
