Moody’s cuts Barclays outlook on fears of further Libor fallout

Ratings agency Moody’s has changed the outlook on Barclays’ financial strength rating from stable to negative, saying the uncertainty over the bank’s future direction is negative for bondholders.

Moody’s said shareholder and political pressures placed on the bank since it was fined £290m for manipulating Libor last month may mean the bank shifts its business model away from investment banking.

While potentially positive in the long-term, such a significant shift in direction is “credit negative” on a short-term basis, the ratings agency said. It also pointed to a potential leadership vacuum within the bank.

“Moody’s decision to change the outlook on Barclays’s C-/ baa2 standalone rating to negative from stable reflects the rating agency’s concerns that the senior resignations at the bank and the consequent uncertainty surrounding the firm’s direction are negative for bondholders,” a statement said.

“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 Libor incident revealed and stakeholders’ perceptions of the investment bank.”

The ratings agency said these concerns are mitigated somewhat by the strength of the bank’s remaining management team, but added further downward pressure on Barclays’ senior debt and standalone financial strength ratings was likely if a stable management structure is not restored in the coming months.

 

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