DBRS Confirms Barclays Bank Plc and Barclays Plc Ratings Following the Ring Fencing Transfers

DBRS Ratings Limited (DBRS) has confirmed the ratings of Barclays Bank plc (BB) and Barclays Plc (BPLC). This follows the restructuring of the group, which was required as part of the UK’s ring fencing requirements, including the establishment of the ring-fenced bank, Barclays Bank UK Plc (BBUK), on April 1, 2018. The confirmed ratings include the A Long-Term Issuer Rating of BB, and the A (low) Long-Term Issuer Rating of BPLC. The Support Assessment for Barclays Plc was confirmed at SA3. Please see a full list of the rating actions at the end of this press release.

KEY RATING CONSIDERATIONS

BB remains a dominant part of the Barclays group despite the transfer of the UK operations to BBUK, and DBRS has confirmed its Intrinsic Assessment (IA) at A. BB’s IA reflects DBRS’ view of the credit strength of the combined Barclays group, taking into account that whilst the ringfencing removes some flexibility for managing capital and funding within the group, it does still allow the group to benefit from synergies arising from the different business lines. Barclays remains a major financial services provider, offering a broad range of products in its two home markets of the UK and the United States. BPLC’s Issuer Rating remains at A (low), in line with DBRS’s approach to rating holding companies.
BBUK comprises the group’s UK operations, including personal and SME banking as well as consumer, credit cards and wealth management businesses. DBRS has not currently assigned a rating to the entity.

RATING DRIVERS

Upward pressure on the ratings of BB and BPLC could arise if the group demonstrates a track record of strong and stable earnings, following a successful resolution of the outstanding major legacy issues, while at the same time, improving its capital position.

Downward rating pressure could arise if the group’s profitability remains under pressure from significant conduct-related or other material charges that would lead to a weakening of the capital buffers. Potential adverse economic effects of the UK’s exit from the EU on the Group’s risk profile could also exert downward pressure on the ratings.

RATING RATIONALE

BPLC’s Long-Term issuer rating of A(low), one notch below that of BB, reflects the structural subordination and UK resolution entity status. Barclays is a major financial services provider engaged in retail and business banking, credit cards, payments and merchant acquiring, corporate and investment banking, and wealth and private banking. Barclays has a strong domestic position in the UK and international wholesale and consumer banking activities concentrated in its two home markets of the UK and the United States. In the past, the group’s statutory profitability has been challenged by legacy conduct issues and restructuring charges and the rundown of the non-core businesses, however Barclays has made consistent progress in restructuring and addressing legacy issues. The group has a generally conservative approach to managing risk. Its funding and liquidity position is solid, supported by a sizeable deposit base and good market access. The group significantly strengthened its capitalisation during 2017, however capital levels remain somewhat below the domestic peers’ range.

Despite legal separation and regulatory restrictions on capital and funding flows between both entities, DBRS expects BB and BBUK to remain strongly integrated within the wider banking group, contributing to its strategic positioning as a transatlantic consumer, corporate and investment bank offering a broad range of products and services across a wide range of consumer segments in its home markets of the UK and the US under Barclays brand.

BB remains a dominant entity within the broader Barclays group. Based on its pro forma 2017 balance sheet, BB’s total assets represent around 80% of Barclays group’s balance sheet. BB incorporates Barclays’ solid businesses within the corporate and investment bank and the international consumer, cards and payments business. The bank has made good progress in restructuring and non-core exits, which going forward should reduce the drag on earnings. DBRS views the impact of the settlement with the US DoJ announced at the end of March 2018 (GBP 1,420 billion to be recognised in 1Q18, equivalent to a pro forma negative impact on the end-2017 CET1 ratio of approximately 45 basis points) as significant. At the same time, the settlement resolves one of the significant legacy conduct matters. Nevertheless, DBRS expects that BB’s earnings could remain affected by potential litigation and conduct issues, given other outstanding legacy matters. Despite the structure of the loan book composition changing towards wholesale and US consumer lending risk, DBRS expects BB to maintain its conservative approach to risk and a low level of impaired exposures. DBRS views BB’s liquidity and funding as solid. BB’s funding will comprise mid and large corporate deposits, US retail accounts, international wealth customer deposits and wholesale funding. Capital levels should remain adequate and aligned to the end-state target for the Group. DBRS expects that, as a result of the transfer of the UK retail business to BBUK, BB’s credit, operational and market risk profile to a larger degree will be driven by the exposure to capital markets, wholesale business and the US economy. Despite a substantial residual deposit base, funding mix will become more wholesale-driven while earnings volatility may increase.

Notes:
All figures are in GBP unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial and company documents. 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, Senior Vice President, Global FIG
Initial Rating Date: October 27, 2004
Last Rating Date: July 14, 2017

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