DBRS Comments on Barclays Bank PLC 2009 Full Year Results, Unaffected at AA (high), Trend Negative

DBRS has today commented that the ratings of Barclays Bank PLC (Barclays or the Bank), including its Long-Term Debt rating of AA (high), are unaffected following the release of the Bank’s 2009 full year results. The trend on all long-term debt ratings, except those debts guaranteed by HM Treasury, remains Negative.

Today’s comment follows Barclays 2009 full year results announcement indicating that underlying profit increased threefold to GBP 5.6 billion on strong income growth of 34% to GBP 31 billion. Importantly, this solid result excludes the GBP 6.3 billion gain on the sale of Barclays Global Investors segment. Barclays’ results were driven by substantial growth in Barclays Capital (BarCap) which experienced top line income growth of 81% to GBP 17.9 billion. Fixed income, currency and commodities, equities and prime services and investment banking all reported strong top line income growth reflecting the increased scale and service offering following the addition of the Lehman acquisition and strong performance in the U.K. and Europe. Importantly, BarCap’s income growth was broad based with six businesses, (rates, credit, investment banking, equities, asset-backed securities and emerging markets) generating income in excess of GBP 1.0 billion. DBRS views the strong results at BarCap as illustrating the noteworthy impact of the Lehman acquisition on the already strong franchise. Barclays’ substantial and diversified revenue stream has afforded the Group the ability to absorb the sizeable credit costs associated with the global economic slowdown. DBRS views the Group’s earnings generation ability a key factor supporting the rating.

Earnings were nonetheless pressured by elevated levels of impairment charges which increased 49% year on year, to GBP 8.1 billion reflecting deteriorating credit conditions across all regions. Core Tier 1 ratio ended the year at 10.0%, increasing from 5.6% at year end 2008. Barclays’ overall balance sheet was reduced by 33% to GBP 1,379 billion.

Importantly, the results further evidence the continued strength of the Barclays franchise in a challenging environment. In addition to increased underlying profits, Barclays recorded strong lending of GBP 35 billion to U.K. households and businesses. In GRCB- Western Europe, the Bank now serves approximately 3 million customers, while GRCB – Emerging Markets reports a total of 4 million customers across these markets.

In DBRS’s view, Barclays continuing solid performance illustrates the strength and underlying earnings resiliency of the Bank’s diverse global franchise. However, DBRS remains cautious given the preponderance of external factors and the sustainability of the global economic recovery remains tenuous. Continuing elevated levels of unemployment and a less than robust recovery could weigh on credit metrics and reverse the positive trends seen in 2H09. DBRS remains concerned that the improvement in global capital markets, which bolstered results in 2009, may prove unsustainable, as new risks emerge. Moreover, DBRS sees heightened sovereign risks, as well as uncertainty surrounding the ultimate form and subsequent impact of new regulations as key risks.

Notes:
All figures are in GBP unless otherwise noted.

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.