Following changes in the group’s legal structure to implement UK ring-fencing requirements, Scope has affirmed the A+ Issuer Rating of Barclays Bank PLC and has assigned first-time A+ Issuer Ratings to Barclays PLC and to Barclays Bank UK PLC.
In addition to affirming the A+ Issuer Rating of Barclays Bank PLC, Scope has affirmed outstanding ratings related to various debt securities of the group:
- Barclays Bank PLC senior unsecured preferred debt ratings at A+
- Barclays Bank PLC short-term debt ratings at S-1+
- Barclays Bank PLC Tier 2 securities ratings at BBB+
- Barclays PLC senior unsecured MREL/TLAC-eligible debt ratings at A
- Barclays PLC Tier 2 securities ratings at BBB+
- Barclays PLC AT1 securities ratings at BB+
The rating agency further assigned new Issuer Ratings of A+ to the group, Barclays PLC, and to the ring-fenced bank, Barclays Bank UK PLC. All ratings have a Stable Outlook.
To comply with UK ring-fencing requirements, which take effect from 1 January 2019, Barclays has successfully changed its legal structure to implement ring-fencing. Barclays Bank PLC, previously the main operating bank of the group, now encompasses the group’s corporate and investment banking as well as international consumer, cards and payments activities. Meanwhile, Barclays Bank UK PLC, the newly created ring-fenced bank, comprises UK retail and business banking activities. Scope expects both entities to remain integral parts of the Barclays group.
In assigning an Issuer Rating of A+/Stable to the newly created ring-fenced bank, Barclays Bank UK PLC, Scope notes that this is a retail and business banking business with a strong domestic franchise. In Scope’s opinion, ring-fencing is mainly intended for the benefit of domestic retail and business depositors and other customers rather than institutional investors. The rating agency also expects ring-fenced banks to remain part of larger banking groups which will continue to be supervised and regulated as groups.
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Scope does not believe that debt investors in ring-fenced entities of a group are automatically better off than debt investors in non-ring-fenced entities of the same group. Under the Bank of England’s preferred resolution strategy for banking groups subject to ring-fencing – bail-in at the holding company level – it is not clear that ring-fenced entities would receive preferential treatment.
In affirming the A+/Stable Issuer Rating on Barclays Bank PLC, Scopes acknowledges the progress the group has made in right-sizing and de-risking its investment banking activities, through the run-down of its non-core division, and the profitability of the consumer, cards and payment businesses. Based on the current reporting of the Barclays International business division, Barclays Bank PLC accounts for about two-thirds of the group’s revenues.
Scope has also assigned an Issuer Rating of A+/Stable to the Barclays PLC group. The rating is underpinned by the progress made in adapting the group’s business model to evolving operating conditions, the resilience of the various businesses although profitability can be improved, and management’s continued attention to maintaining appropriate levels of capital and liquidity. The rating agency views positively the recent resolution of certain material legal and conduct issues.
Scope highlights the following as potential negative rating change drivers: (i) a deviation in management’s strategy to maintain a balanced mix of consumer and wholesale businesses, (ii)
further substantial conduct risk costs, and (iii) the inability to effectively manage potential disruption to or weakening of business conditions due to Brexit.
Meanwhile, continued reshaping of the group, which leads to a track record of sustainable earnings, would be a potential positive rating change driver.