DBRS Confirms Barclays Bank plc’s Long-Term Issuer Rating at A, Stable Trend

DBRS Ratings Limited (DBRS) confirmed the ratings of Barclays Bank plc (Barclays Bank or the Bank) and Barclays Plc (Barclays or the Group). The confirmed ratings include the ‘A’ Long-Term Issuer Rating of Barclays Bank, and the A (low) Long-Term Issuer Rating of the Group. The trend on these ratings remains Stable. Barclays Bank’s Intrinsic Assessment (IA), which reflects DBRS’s view of the credit strength of the combined Barclays group, was maintained at ‘A’. The Support Assessment for Barclays was confirmed at SA3. Please see a full list of the rating actions at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of the Bank’s IA reflects the Group’s strong franchise in the UK and well developed wholesale and consumer banking activities concentrated in the UK and the United States. In recent years, the Group’s statutory profitability has been challenged by legacy conduct issues, restructuring charges and the rundown of the non-core businesses. With the restructuring largely completed and following the resolution of the major legacy matters, earnings should strengthen, in DBRS’ opinion. The funding and liquidity position is solid, supported by a sizeable deposit base and good market access. The Group is well capitalised and benefits from solid underlying earnings generation. Barclays’ Long-Term Issuer Rating of A (low), is one notch below that of Barclays Bank, in line with DBRS’s approach to rating bank holding companies.

RATING DRIVERS
Upward pressure on the ratings could arise if the Group continues to improve its earnings while at the same time maintaining sound asset quality and capital. Downward rating pressure on the ratings is unlikely, however any sign of weakening in the Group’s franchise would be viewed negatively. A substantial negative impact of the UK’s exit from the EU on the Group’s risk profile could also exert downward pressure on the ratings.

RATING RATIONALE
Barclays is a major financial services provider with a strong domestic position in the UK and well developed wholesale and consumer activities concentrated in the UK and United States. Following ring-fencing, the main operating entities of the Group are Barclays Bank PLC and Barclays Bank UK PLC.

The Group’s profitability has, in recent years, been challenged by legacy litigation and conduct costs, restructuring charges, and the rundown of non-core portfolios. In FY18, the Group generated an attributable profit of GBP 1.4 billion, following an attributable loss of GBP 1.9 billion in FY17, which was mainly driven by the GBP 2.5 billion loss related to the sell-down of Barclays Africa Group Limited. Profit before tax (PBT) was GBP 3.5 billion in FY18, remaining flat year-on-year (YoY). Litigation and conduct charges remained significant, totalling GBP 2.2 billion (FY17: GBP 1.2 billion), reflecting principally the GBP 1.4 billion settlement with the U.S. Department of Justice. Excluding litigation and conduct charges, PBT increased by 20% to GBP 5.7 billion, driven by a substantial decline in the cost of risk and a moderate reduction in operating expenses. In 1Q19, litigation and conduct charges were a relatively low GBP 61 million and the Group reported an attributable profit of GBP 1.0 billion and profit before tax of GBP 1.5 billion. With the restructuring largely completed and following the resolution of the major legacy matters, DBRS expects the Group’s earnings to stabilise. The Group guides for a further improvement in its cost efficiency, as well as targets a strengthening of its return on tangible equity in 2019 and 2020 from the FY18 levels.

DBRS views Barclays’ credit risk profile as conservative, benefitting from sound underwriting and resilient economic environment. At FY18, the share of Stage 3 exposures in total loans and advances at amortised cost was a relatively low 2.6%, down from 2.8% on January 1, 2019. In its view of the Group’s risk profile, DBRS also takes into account the substantial capital markets activities. At FY18, the trading book totalled GBP 474 billion, equivalent to 42% of the consolidated balance sheet. While much of the credit exposure related to trading is mitigated through netting, set-off, collateral and risk transfer, significant capital markets activities increase the Group’s exposure to market volatility and contribute to counterparty risk. DBRS notes that market risk exposure is conservatively managed, and during 2018, the average Value at Risk (95%, one day) was a relatively low GBP 21 million, broadly stable YoY.

The Group’s funding and liquidity profile is strong, supported by a well-established UK deposit franchise and good market access. Liquidity is robust, with the total eligible liquidity pool exceeding the outstanding total wholesale funding. At 1Q19, the CRD IV Liquidity Coverage Ratio was a strong 160%, reflecting the Group’s efforts to mitigate potential risks related to Brexit.

The Group is well capitalised and benefits from solid underlying earnings generation. Following an upward trend in recent years, Barclays’ Common Equity Tier 1 (CET1) capital has stabilised in 2018. At 1Q19, the CET1 ratio (including the IFRS 9 transitional relief) was 13%, in line with the Group’s end-state target of around 13% and above the regulatory requirement of 11.7%. The total capital ratio was a solid 20.8%. With an MREL ratio of 30.2% (on a transitional basis) at 1Q19, Barclays is well positioned to meet the expected 2022 requirement of 29.9%.

The Grid Summary Grades for Barclays PLC are as follows: Franchise Strength – Strong; Earnings – Good; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Strong/Good.

Notes:
All figures are in GBP unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2019). This can be found can be found at: http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include Company Documents, the Bank of England, the European Banking Authority and S&P Global Market Intelligence. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

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

Lead Analyst: Tomasz Walkowicz, Vice President, Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director, Global FIG
Initial Rating Date: October 27, 2004
Last Rating Date: April 6, 2018

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