Moody’s Investors Service said that it has changed the outlook on the C-/baa2 standalone bank financial strength rating (BFSR) of Barclays Bank to negative from stable. The C-/baa2 standalone BFSR, as well as the A2 long-term and prime-1 short-term debt ratings remain unchanged.
The credit ratings agency (CRA) added that the A2 senior debt and deposit rating already has a negative outlook due to its expectation that the UK government will reduce its support for large UK banks over the medium term. Its latest action extends this negative outlook to Barclays’ standalone BFSR rating and the bank’s subordinated debt and junior capital instruments, which are notched off the standalone rating.
Moody’s said that the downgrade reflects its concerns that the senior resignations at the bank and the consequent uncertainty surrounding the firm’s direction are negative for bondholders. Specifically, the shareholder and political pressures on Barclays, which resulted in
the resignation of the bank’s chief executive officer (CEO),
chief operating officer (COO) (previously the head of the investment bank) and the stated intention of the chairman to resign, could lead to broader pressure on the bank to shift its business model away from investment banking and reform perceived failures in its business culture. Although this could have potentially positive implications over the longer term, the uncertainty surrounding such a change in direction is credit negative in the short term.
In addition, Moody’s believes that the bank could be challenged to replace the three senior staff and, in particular, find a new CEO who not only has a sufficient understanding of the investment banking business to run Barclays, but also has the credibility and ability to swiftly address the weaknesses that the London Interbank Offered Rate (LIBOR) incident revealed and stakeholders’ perceptionsof the investment bank.
Moody’s believes that these concerns are mitigated to some extent by Barclays’s broad and strong management team, which provide the firm with stability and continuity while a new CEO and subsequently a chairman are appointed, and has therefore limited the scope of its action to a change in outlook.
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