Barclays Bank PLC Ratings Unaffected by Sale of BGI, Senior at AA (high), Negative Trend

DBRS has today commented that its ratings of Barclays Bank PLC (Barclays or the Bank), including its Long-Term Debt rating of AA (high), are unaffected by the Bank’s announcement that it has received a binding offer from BlackRock, Inc. (BlackRock) for the purchase of the Barclays Global Investors business (BGI). The trend on all long-term debt ratings, except those debts guaranteed by HM Treasury, remains Negative.

Barclays’ 12 June 2009 announcement stated that the binding offer for BGI was for consideration of approximately US $13.5 billion (GBP 8.2 billion), comprising of 37.784 million of new BlackRock shares and US $6.6 billion (GBP 4.0 billion) of cash. As a result of this transaction, Barclays will obtain an economic interest of approximately 19.9% of the enlarged BlackRock Group which would be renamed BlackRock Global Investors.

Although DBRS sees this transaction as a neutral for the ratings, DBRS recognizes the many positive aspects of the sale of this business. The proposed transaction monetizes Barclays’ investment in BGI, while adding to capital at a time when solid capitalisation levels are viewed as essential. Assuming the transaction proceeds, Barclays expects to realise a net gain of approximately US $8.8 billion (GPB 5.3 billion), which will add an estimated 163 bps to Equity Tier 1 and 150 bps to Core Tier 1 capital ratios , as of 31 December 2008. The estimated gain is based on the closing price of BlackRock common stock of US $182.60 on 11 June 2009, the net assets of the BGI business were subject to disposal at 31 March 2009 and transaction costs.

Additionally, DBRS sees the earnings impact of this transaction as limited. While BGI provided relatively reliable revenues amounting to approximately 9% of Barclays’ net income, the 19.9% investment in the new BlackRock and returns on the cash generated from the sale are likely to generate income that will partially offset the income reduction with the sale. Moreover, DBRS views the impact on business diversification as limited, given the level of diversification of Barclays’ current business lines. Barclays retail and commercial banking segments continue to add diversification against its investment banking segments. The increased capital provides Barclays with resources to expand these businesses. The 19.9% ownership in the enlarged Blackrock, not only provides potential upside, but also provides a marketable asset.

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Notes:

The applicable methodologies are Analytical Background and Methodology for European Bank Ratings, Second Edition and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.