Barclays Bank PLC's long-term deposit and senior unsecured ratings downgraded to A2 from A1, baseline credit assessment downgraded to baa3 from baa2
NOTE: On April 10, 2018, the List of Affected Credit Ratings accessible via hyperlink from the press release was corrected as follows: provisional former and post latest rating action Other Short Term Ratings, including Commercial Paper & Backed programmes (Foreign Currency) ratings were added for issuer Barclays Bank PLC. Revised release follows.
London, 04 April 2018 -- Moody's Investors Service ("Moody's") has downgraded
the long-term issuer and senior unsecured debt ratings of Barclays
PLC (Barclays) to Baa3 from Baa2, concluding the review for downgrade
it announced on 22 February 2018. Barclays' short-term
ratings were confirmed at Prime-3. Moody's has also
assigned, for the first time, a baa3 notional Baseline Credit
Assessment (BCA) to Barclays.
The standalone baseline credit assessment (BCA) of Barclays Bank PLC (Barclays
Bank), the group's non ring-fenced bank, was
downgraded to baa3 from baa2 and its long-term deposit and senior
unsecured debt ratings were downgraded to A2 from A1. In addition,
Barclays Bank's short-term ratings were confirmed at Prime-1
and the long-term counterparty Risk (CR) assessment was downgraded
to A2(cr) from A1(cr). The bank's Prime-1(cr) short-term
CR assessment was unaffected.
"The ratings downgrade for Barclays and Barclays Bank reflects Moody's
assessment of the overall group's credit profile, particularly
in light of its ongoing profitability challenges, and the impact
on existing creditors of the implementation of ring-fencing",
said Mr. Andrea Usai, Senior Vice President at Moody's.
Moody's has assigned a stable outlook on the ratings for Barclays
and Barclays Bank.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198923
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_198923
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
On 1 April 2018, Barclays changed its legal structure as a result
of the forthcoming requirement to separate its domestic retail and small
business banking businesses from its other operations, under the
UK's ring-fencing rules. Ring-fencing regulation
aims to make economically vital banking services more resilient to financial
shocks and will affect a small number of large UK banking groups,
including Barclays. With today's rating actions, Moody's
has reflected the impact of the ring-fencing implementation and
ongoing credit weakness for the existing creditors of Barclays Bank and
Barclays.
The rating agency has evaluated the expected loss for each instrument
class issued by Barclays and Barclays Bank through its advanced Loss Given
Failure (LGF) analysis. Ring-fencing implementation has
resulted in Moody's performing separate advanced LGF analysis for the
holding company, Barclays, and the two main UK operating companies,
Barclays Bank and Barclays Bank UK. Previously, Moody's
performed a single advanced LGF analysis on the Barclays' group,
including all UK-domiciled entities.
BARCLAYS BANK PLC
Barclays Bank's BCA was downgraded to baa3 from baa2. Barclays
Bank has become the group's non ring-fenced bank, following
the transfer of the group's UK retail and business banking activities
to the newly formed ring-fenced bank, Barclays Bank UK PLC
(LT deposits A1 stable, BCA a3). Barclays Bank has therefore
become more reliant on riskier wholesale and capital markets activities,
increasing its risk profile and expected earnings volatility, as
well as its dependence on wholesale funding, though its funding
profile will remain diversified. Barclays Bank's baa3 BCA
considers its (1) good regulatory capitalisation, which could still
come under pressure if outstanding conduct and litigation issues are settled
beyond our estimates, and its (2) adequate funding and sound liquidity,
which protect the bank against unexpected market shocks. Barclays
Bank's baa3 BCA is constrained by (3) risks from investment banking
and capital market activities, and (4) Moody's expectation
that the bank's net profitability will remain subpar and volatile
over the next 12-18 months, as the group deals with legacy
conduct and litigation issues and winds down its remaining, though
reduced, legacy asset portfolio.
Barclays Bank's narrower business mix, following ring-fencing
implementation, has led Moody's to remove the positive adjustment
for Business Diversification in the qualitative section of the bank's
BCA scorecard. However, Moody's has maintained a one-notch
negative adjustment for Opacity and Complexity, as the rating agency
consider the capital markets activities as inherently riskier, susceptible
to market conditions and more opaque than traditional retail and commercial
banking operations, constraining the credit profile of Barclays
Bank and that of its global peers.
The rating agency has also determined that Barclays Bank does not benefit
from affiliate support to a sufficient level from the rest of the group
because it accounts for 80% of the group's total assets.
In addition, Moody's believes that the transfer of financial
resources from Barclays Bank UK to Barclays Bank will be in part constrained
when UK ring-fencing rules will come into force on 1 January 2019.
Moody's advanced 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 to the relevant ratings
from the firm's adjusted BCA of baa3. For junior creditors of Barclays
Bank, Moody's advanced LGF analysis shows a high loss given
failure.
Moody's has also maintained its assessment of a 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 A2 ratings. For junior securities,
the rating agency continues to assume a low support probability,
resulting in no uplift for government support included in the ratings
for these instruments.
BARCLAYS PLC
Moody's has assigned for the first time a notional BCA of baa3 to Barclays,
which it derived from the standalone credit profile of its two main subsidiaries,
Barclays Bank and Barclays Bank UK, accounting for around 80%
and 20% of the group's total assets, respectively.
On the back of the group's multi-year restructuring and simplification
process, Barclays' baa3 notional BCA reflects its (1) strong
franchises in UK retail, business banking and global credit cards,
(2) moderate asset risk, driven by strong loan quality, which
is partly offset by tail risks from residual legacy assets, and
pending conduct and litigations, despite the recent settlement of
the mortgage-backed securities litigation in the US, (3)
improved regulatory capitalisation, which could come under pressure
as outstanding conduct and litigation issues are settled, and;
(4) diversified funding and sound liquidity. The group's credit
profile is however constrained by weak net profitability, which
the rating agency 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. Moody's believes that these activities will expose the firm
to higher earnings volatility than more traditional retail and commercial
banking activities.
Barclays' baa3 notional BCA scorecard does not include a qualitative
adjustment for Business Diversification. Moody's believes
that its assessments of the group's asset risk and profitability
already capture the degree of diversification of the group's operations,
and the extent to which they will deliver higher and sustainable earnings
over the cycle.
As a result of ring-fencing implementation, Moody's
has performed a separate advanced LGF analysis on Barclays, in which
it considers that its creditors will benefit from Barclays' externally-issued
debt as well as subordinated and junior debt externally issued by Barclays
Bank (Barclays Bank UK does not currently have outstanding debt).
Moody's advanced LGF analysis indicates a moderate loss given failure
for senior unsecured creditors of Barclays, resulting in no uplift
to the relevant ratings from the firm's adjusted BCA of baa3. For
junior creditors of Barclays, Moody's advanced LGF analysis
shows a high loss given failure, positioning this rating at Ba1,
one notch below its baa3 adjusted BCA.
Moody's has maintained its assumption of low probability of government
support for Barclays' creditors, resulting in no further uplifts
included in its ratings.
STABLE RATINGS OUTLOOK
The stable outlook on the ratings for Barclays Bank and Barclays indicates
that Moody's expects the group's overall credit fundamentals
and degree of protection for its creditors from the stock of bail-in-able
liabilities, to remain broadly unchanged, over the next 12-18
months. The stable outlook already incorporates Moody's expectation
of a moderate deterioration in the credit profile, as a result of
deteriorating operating conditions for Barclays and the other UK banking
groups, due to Brexit-related uncertainty.
WHAT COULD MOVE THE RATINGS UP/DOWN
Barclays' baa3 notional BCA could be upgraded, following an improvement
of the standalone credit profiles of its two main subsidiaries Barclays
Bank and Barclays Bank UK. An upgrade of Barclays' baa3 notional
BCA would likely lead to a ratings upgrade. Barclays' ratings could
also be upgraded if the group were to issue a substantially higher amount
of bail-in-able liabilities or maintain excess financial
resources at the level of the holding company, affording greater
protection to its creditors.
Barclays' baa3 notional BCA could be downgraded following a deterioration
of the standalone credit profiles of its two main subsidiaries Barclays
Bank and Barclays Bank UK, which Moody's would likely reflect
in downgrades of their respective BCAs. A lower notional BCA would
likely lead to a downgrade of Barclays' long term ratings. Barclays'
ratings could also be downgraded if Moody's were to assess a lower
degree of protection from the stock of bail-in-able liabilities,
which we assess through our advanced LGF analysis.
Barclays Bank's baa3 BCA could be upgraded if the bank were to make material
progress in addressing legacy conduct and litigations, reducing
the associated downside risks and restoring its profitability on a sustainable
basis. Much higher capitalisation levels and lower reliance on
confidence-sensitive wholesale funding would also be positive for
the BCA. An upgrade of the BCA would likely lead to a ratings upgrade.
Barclays Bank's baa3 BCA could be downgraded in case of (1) a deterioration
in the operating environment beyond our current expectations, (2)
conduct and litigation charges that are materially higher than our current
estimates, (3) a material risk management failure or increase in
risk appetite or leverage, and (4) a material deterioration in the
group's liquidity or capital positions. A downgrade of the bank's
BCA would likely lead to a ratings downgrade. The ratings for Barclays
Bank could be downgraded in case of a lower degree of protection for its
creditors from the stock of bail-in-able debt, which
Moody's assesses through its advanced LGF analysis.
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198923
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:
• 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