London, 01 February 2009 -- Moody's Investors Service has today downgraded the long-term
ratings of Barclays Bank plc ("Barclays") from Aa1 to Aa3
with a stable outlook. The Bank Financial Strength Rating (BFSR)
was lowered from B to C, with a negative outlook. This concludes
Moody's review of the bank's ratings initiated on 17 September
2008. At the same time, the short-term P-1
rating was affirmed. The government-backed ratings assigned
to the debt instruments benefiting from UK government guarantee retain
a Aaa rating. Moody's downgraded the bank's hybrid
instruments by two notches, in line with the downgrade of the senior
debt ratings.
The downgrades reflect Moody's expectation of potentially significant
further losses at Barclays as a result of writedowns on credit market
exposures as well as an increase in impairments in the UK, which
could weaken profitability and capital ratios. "After incorporating
these potential losses, we consider the bank's underlying
economic capital and tangible common equity as average compared to other
key rating factors, such as the bank's superior franchise
value and market position in deposits, which merit an overall BFSR
in the C range," explains Elisabeth Rudman, Vice President
-- Senior Credit Officer in Moody's Financial Institutions
Group. Moody's downgrade of the bank's long-term
rating to Aa3 reflects the weaker BFSR, but also incorporates the
rating agency's view on the long-term credit profile of Barclays
-- beyond the current government support phase -- as one of
the leading UK banks with a solid retail, commercial and capital
market franchise. Moreover, the current rating also takes
account of the very high probability of ongoing support from the Aaa-rated
UK government.
DOWNGRADE OF THE BFSR TO C FROM B, NEGATIVE OUTLOOK
Moody's downgraded the bank financial strength rating of Barclays
from B to C (mapping to a baseline credit assessment of A3) and has a
negative outlook.
The downgrade to C with a negative outlook reflects Moody's expectation
that Barclays' profitability and capitalisation will continue to
be pressured by the ongoing need to implement further writedowns and build
larger loan loss reserves. Based on Moody's own stress tests,
in a base stress scenario deteriorating values will lead to significant
further writedowns on the bank's credit market exposures,
particularly for the GBP10.3 billion (as of Q308) commercial mortgages
and non-US residential mortgage securitisation exposures and on
the GBP23.0 billion notional of monoline-wrapped structured
exposures -- an area in which the rating agency considers the bank
to be exposed to a potentially sharp increase in provisioning requirements.
In addition, although Moody's recognises the strong performance
of parts of the Barclays Capital franchise throughout the financial crisis
(in particular foreign exchange and interest rate products), the
acquisition of Lehman Brothers' North American businesses will further
increase the proportion of revenues from higher-volatility capital
market activities.
In the bank's UK loan books, Moody's considers that
impairments in corporate loan books and unsecured personal lending,
in particular, will accelerate due to the depth of the recession
in the UK and the rapid growth in unemployment, which is reflected
in Moody's negative outlook for credit conditions in the UK banking
sector. Our central risk scenario for the UK economy is a 1 --
1.8% fall in GDP in 2009-2010 and unemployment of
6.8%. Moody's considers the bank's GBP77
billion UK retail mortgage lending book to be conservatively positioned
with relatively low LTVs. Moreover, although the GBP9 billion
property and construction lending in the UK banking book will be impacted
by steep declines in asset values and rising tenant arrears, Moody's
considers Barclays as being better positioned than some of the other large
UK lenders due to lower LTVs and a lower sector-specific concentration.
Outside of the UK, Moody's expects the bank to continue to
report increases in impairment charges in Spain and South Africa.
Barclays has raised over GBP12 billion of additional capital since June
2008, including the Mandatory Convertible Notes which convert in
June 2009, thereby improving its capital ratios. The bank
indicates that the group's pro-forma Tier 1 ratio (including
the MCN conversion) at 31 December 2008 were around 9.5%
and the Core Tier 1 ratio 6.5%. Moody's believes
that this should provide Barclays with a buffer for additional writedowns
or losses of up to approximately GBP16-17 billion whilst still
retaining the current BFSR of C. The government's announced
Asset Protection Scheme could cap or reduce some losses and Moody's
will comment on the potential impact on the scheme as soon as more information
is available. The negative outlook on Barclays' BFSR reflects
the remaining uncertainty associated with potential further credit writedowns
and impairments beyond Moody's base stress assumptions.
DOWNGRADE OF THE SENIOR UNSECURED RATING TO Aa3, STABLE OUTLOOK
Moody's downgraded to Aa3 from Aa1 the senior long-term debt
and deposit ratings of Barclays, with a stable outlook. The
Aa2 senior debt rating of the holding company, Barclays plc,
was downgraded to A1, also with a stable outlook.
Although Barclays has not taken any government capital to date,
Moody's considers the systemic importance of the bank and the likelihood
of receiving government support in case of need to be high. The
rating agency also continues to assign a very high probability of support,
which results in three notches of uplift from the A3 baseline credit assessment.
"Although there may be further downward pressure on the bank's
BFSR over the next couple of years depending on further market developments,
the stable outlook reflects the fact that the risk for senior creditors
over this period is unlikely to deteriorate in view of the likelihood
of government support," says Ms. Rudman. In
the long term and beyond the current high government support phase,
Moody's believes that Barclays remains one of the key retail and
commercial banking groups in the UK, which supports the Aa3 long-term
rating with a stable outlook.
RATING ACTIONS ON SUBSIDIARIES
Separately, Moody's has confirmed the long-term global
scale local and foreign currency deposit ratings of Barclays Bank LLC
(Russia) -- formerly Expobank -- at Ba1 and the BFSR at E+.
The long-term deposit rating of Barclays Bank Ireland was downgraded
from Aa3 to A1, with a stable outlook, and the BFSR remains
unchanged at D+. Moody's will issue a separate press
release about the ratings of Absa and Barclays Bank Mexico.
Moody's previous rating action on Barclays was implemented on 14
October 2008 when the rating review was maintained following the announcement
of the bank's plans to raise capital.
The principal methodologies used in rating this issuer were "Bank
Financial Strength Ratings: Global Methodology" (February
2007) and "Incorporation of Joint-Default Analysis into Moody's
Bank Ratings: A Refined Methodology" (March 2007), which
can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Credit Policy & Methodologies
directory.
Barclays Bank plc is headquartered in London, United Kingdom,
and reported total assets of GBP1,366 billion as at 30 June 2008.
..Issuer: Barclays Bank Ireland PLC
....Senior Unsecured Deposit Rating,
Downgraded to A1 from Aa3
..Issuer: Barclays Bank PLC
....Issuer Rating, Downgraded to Aa3
from Aa1
....Junior Subordinated Regular Bond/Debenture,
Downgraded to a range of A2 to A1 from a range of Aa3 to Aa2
....Junior Subordinated Shelf, Downgraded
to (P)A1 from (P)Aa2
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa2 to Aa1
....Multiple Seniority Shelf, Downgraded
to a range of (P)A2 to (P)Aa3 from a range of (P)Aa3 to (P)Aa1
....Preference Stock Preference Stock,
Downgraded to A2 from Aa3
....Preference Stock Shelf, Downgraded
to (P)A2 from (P)Aa3
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa2
....Senior Unsecured Deposit Program,
Downgraded to Aa3 from Aa1
....Senior Unsecured Conv./Exch.
Bond/Debenture, Downgraded to Aa3 from Aa1
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to a range of A1 to Aa3 from Aa1
....Senior Unsecured Deposit Rating,
Downgraded to Aa3 from Aa1
..Issuer: Barclays Bank PLC, New York
....Senior Unsecured Deposit Note/Takedown,
Downgraded to Aa3 from Aa1
..Issuer: Barclays Bank PLC, Paris
....Senior Unsecured Deposit Rating,
Downgraded to Aa3 from Aa1
..Issuer: Barclays Bank plc Hong Kong
....Senior Unsecured Deposit Note/Takedown,
Downgraded to Aa3 from Aa1
..Issuer: Barclays Capital (Cayman), Ltd.
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa2 to Aa1
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa1
..Issuer: Barclays Financial LLC
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa1
..Issuer: Barclays North American Capital
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa2
..Issuer: Barclays Overseas Capital Corp. B.V.
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa2 to Aa1
..Issuer: Barclays Overseas Investment Company B.V.
....Junior Subordinated Regular Bond/Debenture,
Downgraded to A1 from Aa2
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa2 to Aa1
..Issuer: Barclays Plc
....Issuer Rating, Downgraded to A1
from Aa2
..Issuer: Woolwich plc
....Multiple Seniority Medium-Term
Note Program, Downgraded to Aa3 from a range of Aa2 to Aa1
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa1
Outlook Actions:
..Issuer: Barclays Bank Ireland PLC
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Bank PLC
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Bank PLC, New York
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Bank PLC, Paris
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Bank plc Hong Kong
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Capital (Cayman), Ltd.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays North American Capital
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Overseas Capital Corp. B.V.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Overseas Investment Company B.V.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Barclays Plc
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Woolwich plc
....Outlook, Changed To Stable From
Rating Under Review
London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Elisabeth Rudman
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Barclays Bank (senior to Aa3/stable, BFSR to C/negative)
