(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has today affirmed Barclays Bank plc's (Barclays Bank) Long-term Issuer Default Rating (IDR) at 'A' with a Stable Outlook and Short-term IDR at 'F1'. At the same time, the agency has affirmed the bank's 'a' Viability Rating (VR), '1' Support Rating and 'A' Support Rating Floor (SRF). The agency has also affirmed the ratings of Barclays Bank's parent, Barclays plc
and all issue ratings. A full list of rating actions is at the end of this rating action commentary.
The rating actions have been taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the sector 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 risks.
The affirmation of Barclays Bank's VR and IDRs reflect these themes, as well as the stable risk profile of its large and core UK retail banking and Barclaycard operations.
RATING DRIVERS AND SENSITIVITIES - VR, IDRS AND SENIOR DEBT Barclays Bank's IDRs are driven by its VR, which is based on the bank's strong franchises across diversified businesses, its generally good track record in managing credit and market risk effectively, strong liquidity management and Fitch's expectation that the bank will maintain sound capital ratios that are in line with its global peers. The VR also reflects market risk exposure through its investment banking operations and the exposure to material litigation risk. Reputation risk is currently considered high and a clear near-term priority for the bank's new management team.
Fitch expects Barclays to continue to operate as a global universal bank with material investment banking operations. The bank's newly appointed CEO launched a full review of the bank's businesses, and Fitch expects this review to result in the downscaling of some business areas, including for pure reputational risk reasons. However, at the same time, the new CEO has already stated that he does not expect a breakup of the bank or an exit from whole business lines. Barclays Bank's performance in H112 remained solid, despite a difficult operating environment, and the bank benefits from good cost efficiency, including in its investment banking business, compared to many peers.
Barclays Bank's VR reflects Fitch's view that the bank has generally managed credit and market risks effectively, especially in its retail operations, and that it tightly controls risk exposure. The VR is sensitive to material changes in risk appetite and would come under pressure if the bank materially increased market risk exposure in its investment banking operations, which Fitch currently does not expect. As one of the largest global investment banks, Barclays has strong market shares in several key segments in fixed income and equities, which potentially expose the bank to material market risk. The performance of the bank's investment banking activities inevitably oscillates, but has remained more stable than at many peers.
Barclays Bank's VR would also come under pressure if the bank's asset quality, which has suffered particularly in its European lending operations and is also starting to suffer in Africa, deteriorates very significantly. Fitch believes that the bank's good credit risk control has resulted in a loan book composition that is more resilient to an economic downturn than at some of its domestic and international peers.
Barclays Bank's exposure to GIIPS countries (the largest exposures are residential mortgages in Italy and Spain) has declined as the bank has actively reduced exposure and the funding gaps of local operations in Spain, Portugal and Italy. Nevertheless, at end-June 2012 the aggregate funding mismatch in Spain ('BBB'/Negative), Portugal ('BB+'/Negative) and Italy ('A-'/Negative) was material at GBP18bn, of which GBP11.9bn related to Italy. This gives rise to potential redenomination risk in a very extreme scenario, but Fitch expects the funding mismatch to be reduced further.
Fitch considers Barclays Bank's liquidity profile to be a relative strength. Its large end-June 2012 liquidity pool of GBP170bn, of which GBP124bn was held in cash and deposits with central banks, is of high quality and amply covers GBP101bn of short-term unsecured wholesale funding due within one year. Barclays Bank's VR is sensitive to a deterioration of the bank's funding and liquidity, which Fitch currently does not expect.
Barclays Bank's VR reflects Fitch's expectation that it will maintain sound capitalisation in the face of regulatory pressure. The bank has estimated a 'look-through' Basel III core Tier 1 (CT1) ratio at the Barclays plc level of around 8.6% for January 2013, which would be in line with estimates for its peers, and Fitch expects Barclays Bank to continue to strengthen its capital ratios over the coming years.
As a retail and globally operating investment bank, Barclays Bank is exposed to material litigation, regulatory and operational risk, and charges for customer redress and regulatory fines in 2011 and H112 were significant. Fitch expects that these risks will remain higher than in the past, but that the related costs will be absorbable through operating profit. Barclays Bank's VR would come under pressure if the probability of material losses related to these risks increased.
Upward momentum for Barclays Bank's VR and IDR would either require a material scaling back of its investment banking ambition, which Fitch considers unlikely, or could arise as a consequence of continuing further reduction in risk appetite and exposure, combined with improvements in the group's operating environment and profitability and further progress in strengthening capitalisation.
As Barclays Bank's VR and SRF are at the same level, a downgrade of the VR would only result in a downgrade of its Long-term IDR if the SRF was also lowered.
RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR Barclays Bank's Support Rating and SRF reflect Fitch's expectation that the UK authorities' propensity to provide support for the large and systemically important banks will remain high in the medium term. Fitch expects support for banks in the UK and other European countries to decline over time, which would result in lower Support Ratings and SRFs. Barclays Bank's Support Rating and SRF are also sensitive to a weakening of the UK authorities' ability to provide support and therefore to the UK's creditworthiness.
GOVERNMENT GUARANTEED DEBT, SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The 'AAA'/'F1+' debt and programme rating assigned to debt guaranteed by the UK government is based on the UK's sovereign rating and reflects Fitch's view that the UK government would ensure timely payment on the liabilities guaranteed by the government. The ratings are sensitive to any change in the UK's sovereign rating.
Subordinated debt and other hybrid capital issued by Barclays are all notched down from the VR of Barclays 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 the VR of Barclays Bank.
HOLDING COMPANY RATING DRIVERS AND SENSITIVITIES Barclays plc's VR and IDRs are equalised with those of Barclays Bank and reflect the absence of any double leverage at the holding company level. Barclays plc's VR and Long-term IDR is sensitive to any change in Barclay Bank's VR. Barclays plc's Support Rating and SRF reflect Fitch's view that support from the UK sovereign for the holding company is possible, but cannot be relied on.
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 and programme: affirmed at 'AAA' Guaranteed senior short-term debt and programme: affirmed at 'F1+' 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 hybrids: 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 SpA V.lo S Maria alla Porta 1 20123 Milan Secondary Analyst James Longsdon Managing Director +44 20 3530 1076 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075
Additional information is available on
. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012, 'Rating Bank Regulatory Capital and Similar Securities', dated 15 December 2011, and 'Rating FI Subsidiaries and Holding Companies', dated 10 August 2012, are available at
. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria Rating Bank Regulatory Capital and Similar Securities Rating FI Subsidiaries and Holding Companies