LONDON (MNI) – Ratings agency Moody’s Investor Services have cut
the outlook for Barclays Bank PLC to negative in the wake of senior
management resignations. The full text of Moody’s text follows.
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Moody’s changes outlook on Barclays’ standalone rating to negative
Debt ratings unchanged at A2/P-1
London, 05 July 2012 — Moody’s Investors Service has today changed
the outlook on the C-/ baa2 standalone bank financial strength rating
(BFSR) of Barclays Bank plc to negative from stable. The C-/ baa2
standalone BFSR as well as the A2 long-term and Prime-1 short-term debt
ratings remain unchanged. The A2 senior debt and deposit rating already
has a negative outlook due to Moody’s expectation that the UK government
will reduce its support for large UK banks over the medium term. Today’s
action extends this negative outlook to Barclays’ standalone BFSR rating
and the bank’s subordinated debt and junior capital instruments, which
are notched off the standalone rating.
RATIONALE FOR NEGATIVE OUTLOOK
Moody’s decision to change the outlook on Barclays’s C-/ baa2
standalone rating to negative from stable reflects the rating agency’s
concerns that the senior resignations at the bank and the consequent
uncertainty surrounding the firm’s direction are negative for
bondholders. Specifically, the shareholder and political pressures on
Barclays, which resulted in the resignation of the bank’s CEO, COO
(previously the head of the investment bank) and the stated intention of
the Chairman to resign, could lead to broader pressure on the bank to
shift its business model away from investment banking and reform
perceived failures in its business culture. Although this could have
potentially positive implications over the longer term, the uncertainty
surrounding such a change in direction is credit negative in the short
term. In addition, Moody’s believes that the bank could be challenged to
replace the three senior staff and in particular find a new CEO who not
only has a sufficient understanding of the investment banking business
to run Barclays, but also has the credibility and ability to swiftly
address the weaknesses that the LIBOR incident revealed and
stakeholders’ perceptions of the investment bank.
Moody’s believes that these concerns are mitigated to some extent
by Barclays’s broad and strong management team, which provide the firm
with stability and continuity whilst a new CEO and subsequently a
Chairman are appointed, and limit the scope of today’s action to a
change in outlook.
More broadly, Moody’s incorporated the investment banking
industry’s propensity for failures in the control environment into the
rating actions taken on 15 large firms with global capital markets
operations on 21 June 2012, including the two-notch downgrade of
Barclays to A2 from Aa3 (please refer to “Moody’s downgrades firms with
global capital markets operations”). Moody’s also commented on the
industry-wide nature of the breakdown of controls highlighted by the
ongoing investigations into the manipulation of the Libor rate in
“Moody’s Comments on Barclays’ LIBOR Settlement”, published on 29 June
2012. With Barclays’ standalone rating at baa2, the bank’s ratings are
positioned to absorb a certain amount of volatility. Consequently it is
the disruptive management changes facing Barclays, rather than the
outcome of last week’s LIBOR investigations, that are the key driver for
today’s rating action.
WHAT COULD MOVE THE RATINGS UP/DOWN
Moody’s says that Barclays’ senior debt and standalone ratings
could experience further downward pressure if the bank proved to be
unable to restore a stable management structure over the coming months;
or if there are indications that the current developments were to have a
financial impact sufficiently large to put pressure on capital ratios
and/ or negative implications for the bank’s business model.
Given the negative outlook, any upward ratings movement is
currently unlikely; however, the standalone rating could be stabilised
if Barclays is restores a stable management structure.
–London newsroom: 00 44 20 7862 7499; e-ml: ukeditorial@marketnews.com
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