Fitch Affirms Barclays Bank at 'A'; Outlook Stable

Thu May 16, 2013 4:13pm EDT

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(The following statement was released by the rating agency) MILAN/LONDON, May 16 (Fitch) Fitch Ratings has affirmed Barclays Bank plc's Long-term Issuer Default Rating at 'A' with a Stable Outlook and Short-term IDR at 'F1'. The agency has also affirmed the bank's Viability Rating (VR) at 'a', Support Rating (SR) at '1' and Support Rating Floor (SRF) at 'A'. At the same time, Fitch has affirmed the holding company Barclays plc's ratings and all debt ratings. A full list of rating actions is at the end of this rating action commentary. The rating actions on Barclays Bank have been taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the industry is stable. Positive rating drivers include improved liquidity, funding, capitalisation and more streamlined businesses, all partly driven by regulation. Offsetting these positive drivers are substantial earnings pressure, regulatory uncertainty and heightened legal and operational risk. KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT Barclays Bank's VR, IDRs and senior debt ratings reflect the bank's strong franchise in diversified businesses, its solid track record in managing credit and market risk, healthy customer funding franchise, strong liquidity management and Fitch's expectation that the bank will maintain sound capital ratios that are in line with its global peers. The ratings also reflect market risk exposure through its investment banking operations and the exposure to litigation and reputation risks. RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT Barclays Bank's Long-term IDR is on Stable Outlook. Fitch expects Barclays Bank to concentrate on the businesses it has identified as core during the strategy review it completed in February 2013. This means that the bank will continue to operate a global investment banking business, where it has strong market shares in several key segments in fixed income and equities, which expose the bank to potentially material market risk. The performance of the bank's investment banking activities inevitably oscillates, but has remained more stable than at many peers, and Fitch expects the bank to continue managing related market risk conservatively as risk-weighted assets (RWA) in investment banking are set to decline further by 2015. Barclays Bank's VR would come under pressure if the bank materially increased its investment banking risk appetite, which Fitch currently does not expect, or if it was unable to maintain earnings volatility at moderate levels. Barclays Bank's VR reflects Fitch's expectation that the bank will maintain strong capital ratios in line with its global peers, and the VR would come under pressure if the bank failed to achieve its target capitalisation. Barclays' pro-forma end-March 2013 Basel III look-through common equity Tier 1 (CET1) ratio stood at 8.4%, which brings the bank more in line with its global peers. In addition to CET1 capital, Barclays has issued USD4bn contingent capital notes, which are written down if the bank's CET1 ratio falls below 7%. These notes are not included in Fitch Core Capital but have been assigned 50% equity credit and are included in Fitch Eligible Capital. Barclays' adjusted leverage remains somewhat higher than at its US peers but is at the lower end compared with most of the European GTUBs. Fitch expects leverage to decline as Basel III leverage requirements are introduced. Barclays Bank's VR benefits from its diversified business mix, including a strong and well-performing domestic retail and corporate banking franchise, and its global credit card business, where profitability has been strong. Rating pressure would arise if performance in these stronger businesses weakened. The VR factors in Fitch's expectation that Barclays Bank's European retail and business banking operations will remain a drag on the group's profitability as loan impairment charges are likely to remain high and margins are under pressure. The impact of the European operations on the bank's earnings should remain manageable as the restructuring of the European businesses should improve efficiency, but the unit is unlikely to contribute materially to group profit. The bank's wealth management unit is small relative to those at some of its GTUB peers, but is growing. Barclays Bank's VR is sensitive to any material and structural changes in the size and relative earnings contribution of the non-investment banking operations. Fitch considers Barclays Bank's liquidity positive for its VR. The group's liquidity pool declined to GBP141bn at end-March 2013 (2012: GBP150bn) and cash and deposits with central banks in the pool declined as holdings in government bonds increased. Fitch considers liquidity at this level sound given that liquid assets cover unsecured wholesale funding due in less than one year (GBP98bn) by 144%. Sound liquidity is also reflected in Barclays' estimated 110% Basel III liquidity coverage ratio and the 98% loan/deposit ratio in RBB, Corporate Banking and Wealth and Investment Management. A material deterioration in liquidity, which Fitch does currently not expect, would put the bank's VR under pressure. Barclays Bank's Long-term IDR is at its SRF, which means that a downgrade of its VR would only trigger downgrades of the IDRs if the SRF were revised down as well. KEY RATING DRIVERS - SUPPORT RATING AND SRF The affirmations of Barclays Bank's Support Rating and SRF are based on Fitch's view that the probability of support from the UK authorities for Barclays Bank, if required, remains extremely high in the near term due to the bank's systemic importance. RATING SENSITIVITIES - SUPPORT RATING AND SRF The Support Rating and SRF are sensitive to a change in Fitch's view of the ability or propensity of the UK sovereign to extend full support to the bank's senior creditors. There is a clear political intention to ultimately reduce the implicit state support for systemically important banks in Europe and the US, as demonstrated by a series of policy and regulatory initiatives aimed at curbing systemic risk posed by the banking industry. This might result in Fitch revising SRFs downward in the medium term, although the timing and degree of any change would depend on developments with respect to specific jurisdictions. Until now, senior creditors in major global banks have been supported in full, but resolution legislation is developing quickly and the implementation of creditor "bail-in" is starting to make it look more feasible for taxpayers and creditors to share the burden of supporting large, complex banks. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital, including the contingent capital notes, issued by Barclays Bank is notched down from its VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Their ratings are primarily sensitive to any change in Barclays Bank's VRs . KEY RATING DRIVERS AND SENSITIVITIES - HOLDING COMPANY RATING DRIVERS AND SENSITIVITIES Barclays plc's IDRs and VR are equalised with those of Barclays Bank and reflect its role as the bank holding company and the absence of double leverage at end-2012 at holding company level. Fitch could notch the holding company's IDRs and VR below Barclays Bank's ratings if double leverage at Barclays plc increased above 120% or if the role of the holding company changed, which Fitch currently does not expect. Barclays plc's SR and SRF reflect Fitch's view that support from the UK authorities for the holding company is possible, but cannot be relied on. As the SRF is 'No Floor', the holding company's Long-term IDR is driven purely by its VR and is therefore primarily sensitive to the same drivers as Barclays Bank's VR. The rating actions are as follows: Barclays Bank Long-term IDR: affirmed at 'A'; Outlook Stable Short-term IDR and short-term debt: affirmed at 'F1' Viability Rating: affirmed at 'a' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A' Senior unsecured debt: affirmed at 'A' Market linked securities: affirmed at 'Aemr' Government guaranteed senior long-term debt: affirmed at 'AA+' Lower Tier 2 debt: affirmed at 'A-' Upper Tier 2 debt: affirmed at 'BBB' Preference shares with no constraints on coupon omission: affirmed at 'BB+' Other hybrid Tier 1 instruments: affirmed at 'BBB-' Tier 2 contingent capital notes: affirmed at 'BBB-' The rating actions have no impact on the ratings of the outstanding covered bonds issued by Barclays Bank Barclays plc (Barclays's holding company parent) Long-term IDR: affirmed at 'A'; Outlook Stable Short-term IDR: affirmed at 'F1' Viability Rating: affirmed at 'a' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Barclays US CCP Funding LLC US Repo Notes Programme: affirmed at 'F1' Contact: Primary Analyst Christian Scarafia Senior Director +39 02 87 90 87 212 Fitch Italia S.p.A. V.lo Santa Maria alla Porta, 1 20123 Milan Secondary Analyst Matthew Clark Director +44 20 3530 1225 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria "Global Financial Institutions Rating Criteria" dated 15 August 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 5 December 2013, "Evaluating Corporate Governance" dated 12 December 2012 and "Rating FI Subsidiaries and Holding Companies" dated 10 August 2012 are available on www.fitchratings.com. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities here Evaluating Corporate Governance here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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