DBRS Places Barclays Bank plc’s AA ratings Under Review with Negative Implications

DBRS Ratings Limited (DBRS) has today placed the ratings of Barclays Bank plc (Barclays or the Bank) including its AA Issuer and Long-Term debt ratings and its R-1 (high) Short-Term rating, Under Review with Negative Implications.

Today’s rating action follows the announcement by Barclays in February 2013 regarding the outcome of its strategic review. Overall DBRS views the strategic plan as a positive step towards (i) tackling the Bank’s reputational problems which culminated in the significant management upheaval in 2012, and (ii) clarifying the steps to be taken to improve the earnings profile of the Bank. However, DBRS’s review of the ratings is driven by a number of ongoing concerns about the scope of the challenges facing the Bank and the sector more generally. Whilst the Bank has made clear it recognises the importance of change, DBRS considers that Barclays faces a difficult task in overhauling the controls and culture in a large and complex organization. In addition, Barclays’ profitability has been lower than similarly rated peers, and DBRS is concerned about the amount of restructuring work required in order to achieve strong and sustainable returns with the higher levels of capital required under Basel III. While a number of large banks face similar challenges, Barclays faces a particularly tough regulatory environment in the UK. Also, relative to peers a high proportion of Barclays’ earnings come from investment banking activities, which face a difficult environment with significant regulatory challenges.

DBRS recognises that even though the Bank’s profits in recent years have been dominated by the investment bank, Barclays has a broad range of strong underlying customer franchises, and also notes that the Bank has taken considerable steps to strengthen its balance sheet over the past 4 – 5 years. Therefore, DBRS considers that these factors will continue to underpin the ratings at a high level regardless of the outcome of the review.

During the review, DBRS will focus on the concrete steps being taken by Barclays to address its reputational challenges and how effective these steps are likely to be, its ability to successfully execute its strategic plan without significant volatility in earnings, and the extent to which its existing business mix will be affected by regulatory headwinds.

Notes:
All figures are in GBP unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organizations. Other applicable methodologies used include the DBRS Criteria – Intrinsic and Support Assessments; DBRS Criteria: Rating Bank Subordinated Debt and Hybrid Instruments with Discretionary Payments and DBRS Criteria: Rating Bank Preferred Shares & Equivalent Hybrids. These can be found at: http://www.dbrs.com/about/methodologies

[Amended on July 30, 2014, to reflect actual methodologies used.]

The sources of information used for this rating include the company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Elisabeth Rudman
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 9 September 2005
Most Recent Rating Update: 3 July 2012

For additional information on this rating, please refer to the linking document under Related Research.