Upload
trinhthuan
View
223
Download
4
Embed Size (px)
Citation preview
Barclays Bank PLC
Table Of Contents
Major Rating Factors
Outlook
Rationale
Related Criteria And Research
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 1
1412415 | 301240661
Barclays Bank PLC
Barclays Bank PLC
Primary Credit Analyst: Dhruv Roy, London, (44) 20-7176-6709; [email protected]
Secondary Contact: Richard Barnes, London, (44) 20-7176-7227; [email protected]
Additional Contact: Financial Institutions Ratings Europe; [email protected]
Major Rating Factors
Counterparty Credit Rating
A-/Stable/A-2
Greater China Regional ScalecnAA/--/--
Strengths: Weaknesses:
• Good asset quality relative to peers over an
extended period.
• Leading market positions in U.K. banking and global
investment banking.
• Reasonably diversified revenues by business line
and by geography.
• In the midst of a period of significant restructuring.
• Investment banking, while being reduced in relative
importance, increases group revenue volatility and
confidence sensitivity relative to many peers.
• The combination of possible litigation charges and
other exceptional items makes earnings outlook less
predictable.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 2
1412415 | 301240661
Outlook
The stable outlook on U.K.-based Barclays Bank PLC (Barclays) reflects Standard & Poor's Ratings Services' view
that the bank's continued progress on its restructuring goals should solidify our assessment of its business stability.
The outlook also reflects our expectation that capitalization, as measured by the risk-adjusted capital (RAC) ratio,
will remain comfortably in the "adequate" range, despite the drag of exceptional items related to litigation and
restructuring.
Although unlikely in the near term, we could raise the ratings if prospects for the group's strategy and earnings
become more predictable. We note the positive trend we see for economic risk for banks in the U.K. An
improvement of our U.K. economic risk assessment is unlikely in itself to be sufficient to improve our view of the
bank's combined capital and risk assessment nor the one notch of uplift we factor into the ratings for additional
loss absorbing capacity (ALAC).
We could lower the ratings if we observe setbacks in Barclays' restructuring, such as an unexpected and prolonged
deterioration in operating performance. Further reputational and financial setbacks related to material new conduct
and litigation matters could also strain the ratings.
Rationale
Our ratings on Barclays reflect the 'bbb+' anchor, which we then adjust for the following bank-specific factors:
• An "adequate" business position that balances its strong and stable U.K. banking franchise against its challenging
restructuring and relatively high investment banking weighting compared with domestic and global peers.
• An "adequate" capital and earnings assessment, reflecting our projection of a RAC ratio in the 8.5%-9.0% range by
year-end 2016.
• An "adequate" risk position assessment, primarily reflecting the strong asset quality of the bank's domestic loan
portfolio, balanced by the complex risks it faces as a global investment bank.
• "Average" funding and "adequate" liquidity, in light of the bank's stable deposit franchise, manageable wholesale
funding reliance, and sound liquidity metrics.
Finally, we adjust the resulting 'bbb+' unsupported group credit profile (GCP)—-the group's intrinsic credit
worthiness--upward by one notch to reflect our expectation of ALAC available to the group.
Anchor:
The 'bbb+' anchor draws on our Banking Industry Country Risk Assessment (BICRA) methodology and our view of the
weighted-average economic risk in the countries in which Barclays operates, based on the geographic distribution of
its net customer loan exposures. Customer loan distribution is approximately 55% in the U.K., 15% in the U.S., 10% in
South Africa, 5% in Italy, 10% in the rest of Europe, and 5% in the rest of the world. The weighted-average economic
risk score for these territories is just above '4' on a scale of 1-10 (1 representing the lowest risk and 10 the highest),
similar to the economic risk score for a bank operating solely in the U.K. We see a positive trend for economic risk for
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 3
1412415 | 301240661
Barclays Bank PLC
banks in the U.K. reflecting reduced private sector leverage and our expectation of low loan losses. An upgrade of
economic risk would principally require our metric of household and corporate debt-to-GDP to improve sustainably
below our 150% threshold, from 161% at end-2014. Under our base case, we expect a continuation of the
accommodative monetary policy, solid economic growth, and low single digit total credit growth. All other factors
remaining the same, an upgrade of U.K. economic risk to '3' from '4' will not result in a change in Barclays' 'bbb+'
anchor.
The industry risk score of '3' is based solely on Barclays' home market of the U.K. We see a stable trend for industry
risk for U.K. banks. The domestic reform agenda is well advanced and banks should now have more clarity on their
future operating environment; the main exception to this is the full implementation of ring-fencing plans. Upside is
constrained by the short track record of the revised institutional framework and the still relatively modest levels of
system-wide bank profitability. Moreover, conduct and litigation risk still weighs on system-wide earnings and its
reputation.
Table 1
Barclays Bank PLC Key Figures*
Year-ended Dec. 31
(Mil. £) 2014 2013 2012 2011 2010
Adjusted assets 1,348,083 1,302,976 1,481,143 1,554,379 1,479,519
Customer loans (gross) 453,420 456,354 457,360 464,446 462,678
Adjusted common equity 46,147 46,147 41,973 43,119 41,897
Operating revenues 25,764 28,210 29,153 28,514 31,107
Noninterest expenses 16,737 18,292 17,774 18,462 18,930
Core earnings 2,674 3,231 7,301 4,262 4,924
*Standard & Poor's database.
Business position: Gradual progress on restructuring goals
Our assessment of Barclays' business position as "adequate" balances its strong and stable U.K. banking franchise
against its challenging restructuring (the "Transform" program) and relatively high investment banking weighting
compared with domestic and global peers. Our view of Barclays' business position is also underpinned by the
reasonable diversity of its revenue streams based on a broad spread of geographic and client exposures (see chart 1).
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 4
1412415 | 301240661
Barclays Bank PLC
Chart 1
Barclays' May 2014 strategy update signaled a commitment to significantly reduce the relative size of the investment
bank (with typically more volatile revenues). Regulatory risk weighted assets (RWAs) allocated to investment banking
were targeted to decline from over 50% of the group total at end-2013 to 30% by end of 2016. In addition to the
greater focus on its retail and commercial banking activities, Barclays has outlined a series of quantitative and
qualitative targets by end-2016 aimed at building capital (CRD IV CET1 ratio >11%; leverage ratio >4%), improving
returns (core adjusted return on equity >12%), and increasing stakeholder engagement (balanced scorecard metrics).
Barclays made substantial progress on its restructuring goals in 2014, having completed the sale of its Spanish retail
business and reduced its leverage exposure. However, there remains much to be done in terms of delivering the
returns shareholders expect. While personal and corporate banking (PCB) and Barclaycard delivered returns in line
with expectations (in part due to favorable trends in credit losses), the investment bank continues to consume more
capital relative to the profits it generates, despite improvements in the first quarter of 2015.
Under the new divisional structure, PCB is the amalgamation of Barclays' core U.K. banking businesses--including
personal retail, mortgages, wealth management, and U.K. corporate--under one management umbrella. The goal is to
provide a continuum of products and services across client segments depending on customer needs without the
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 5
1412415 | 301240661
Barclays Bank PLC
obstacles of organizational boundaries. PCB is one of the four main providers of universal banking services in the U.K.,
alongside HSBC Bank PLC, Lloyds Bank PLC, and Royal Bank of Scotland PLC. We estimate that Barclays has a
market share of 10%-15% in most retail products and 15%-20% in commercial and corporate banking. Barclays is one
of the leading providers of digital banking services in the U.K, which is an important differentiator in our view. We
expect Barclays' U.K. franchise to remain strong and stable, with a sizable personal banking franchise, underpinned by
16 million customers and a 1,500-strong branch network.
Barclaycard is one of the largest consumer payments provider globally and the number one credit card issuer in
Europe. Together with PCB, Barclaycard and Africa are the key growth businesses for the group. The run-down of the
non-core division will enable capital and the group's consolidated risk budget to be allocated to the former businesses.
Historically, the investment bank was weighted toward generating revenue from the RWA-intensive fixed income,
currency, and commodities (FICC) businesses. The implementation of CRD IV capital rules forced a rethink of the
division's business model because generating adequate returns on capital-intensive FICC businesses became
increasingly difficult. In 2014, Barclays implemented the following important steps on the path to generating
sustainable returns:
• Moved £90 billion of non-strategic RWAs to the non-core division.
• Reduced total costs by 9% through measures such as reducing senior management headcount, consolidating
technology platforms, and resizing banking footprint in Europe and Asia.
• Exited capital-intensive areas, such as most physical commodities, and refocused interest and foreign exchange
rates to shorter-dated, standardized, and cleared transactions.
• Refocused on origination-linked businesses with lower balance sheet usage.
Notwithstanding the above, a combination of low volatility (unfavorable for trading revenues), organizational
restructuring, and conduct/reputational matters such as the allegations of wrongdoing related to "dark pool"
alternative trading systems, made 2014 a difficult year for the investment bank. The changes being implemented
should result in a more predictable revenue profile. However, in our view, the increased cost and complexity of
regulatory changes such as the establishment of an intermediate holding company in the U.S. and ring-fencing
requirements in the U.K. are likely to postpone the return to a level of profitability that is acceptable to the
shareholders. Therefore, the possibility of further changes to Barclays' investment banking franchise as a result of
customer attrition, regulatory, or market factors cannot be ruled out, in our view.
We note that the restructuring and a new divisional structure may position Barclays a little better for the U.K.
government's ring-fencing plans--ring-fencing banks' retail and small-to-midsize-enterprise deposit-taking operations
from wholesale banking and other operations. The government intends to implement the plans by 2019, and we
understand that banks are currently in discussions with the Prudential Regulatory Authority to agree on bank-specific
plans. A bank like Barclays with large wholesale banking operations will be affected, but we see the potential impact as
being difficult to quantify at this stage. We do, however, expect that we will have to place more analytical focus on
ring-fenced entities on a stand-alone basis and that differences between the ratings on individual entities within a
banking group may become more common.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 6
1412415 | 301240661
Barclays Bank PLC
Table 2
Barclays Bank PLC Business Position
Year-ended Dec. 31
(Mil. £) 2014 2013 2012 2011 2010
Total revenues from business line (currency in millions) 26,419 28,242 29,410 32,352 31,708
Commercial & retail banking/total revenues from business line 63.8 55.6 53.0 51.5 51.7
Trading and sales income/total revenues from business line 28.7 30.2 32.6 25.7 34.6
Corporate finance/total revenues from business line N/A 7.8 7.2 6.3 7.1
Asset management/total revenues from business line N/A 6.5 6.2 5.7 5.2
Other revenues/total revenues from business line 7.5 (0.1) 1.0 10.8 1.5
Investment banking/total revenues from business line 28.7 38.0 39.9 31.9 41.7
Return on equity (0.3) 1.0 (1.9) 5.6 7.3
N/A--Not applicable. Standard & Poor's database.
Capital and earnings: Decline in exceptional expenses to help capital generation
We view Barclays's capital and earnings as "adequate." We calculate Barclays' RAC ratio to be 8.2% as of Dec. 31,
2014 (see table 5). This ratio has remained broadly unchanged from 8.3% a year before, mainly due to the
implementation of CRD IV, which resulted in higher reported exposure at default (EADs) for certain items such as
counterparty credit risk. In addition to EAD increases related to technical items, a modest increase in EADs was also
the result of loan book growth, particularly in Barclaycard.
Reflecting our updated view of the likely trends in Barclays' capitalization, we now expect Barclays' RAC ratio to
improve to the 8.5%-9.0% range by the end of 2016. Our forecast for Barclays' projected RAC includes the
assumptions outlined below.
Total adjusted capital (TAC), the numerator of the RAC ratio:
• Broadly flat top-line revenues over the medium term. This reflects stable net interest margin in PCB and
Barclaycard. In terms of business volumes, a reduction in non-core assets will be broadly offset by growth in PCB
and Barclaycard. We assume that revenue growth in the investment bank remains sluggish as the mix shifts from
trading income to fee and commission income.
• Some further incremental reductions in operating expenses as non-core assets are run off.
• A loan loss rate remaining well below historical averages at around 55 basis points (bps).
• A little over £2 billion of conduct- and litigation-related charges in 2015 (including provisions taken in the first
quarter of 2015), reflecting a number of unresolved matters. We further assume that conduct and litigation charges
will decline substantially from 2016.
• Declining restructuring expenses, but remaining meaningful in 2015 and 2016.
• A dividend payout ratio in the 40%-50% range.
• Approximately £1 billion of AT1 issuance in 2015, as the bank progresses toward meeting eventual TLAC
requirements.
Standard & Poor's-adjusted RWAs:
• We assume a modest (1%-2%) decline in Standard & Poor's-adjusted RWAs in 2015, and then some growth from
2016. Our assumption for 2015 reflects a decline in non-core assets related to higher risk countries (in terms of
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 7
1412415 | 301240661
Barclays Bank PLC
Standard & Poor's risk weights) such as Spain and Italy. We also expect reverse repurchases and other secured
lending to decline due to lower matched book trading as a result of balance sheet deleveraging. We expect that this
decline will be mostly offset by net lending growth in PCB, Barclaycard, and Africa.
Barclays reported a regulatory CRD IV fully loaded CET1 ratio of 10.6% on March 31, 2015. This is an improvement
from 9.6% on March 31, 2014, primarily reflecting a reduction in regulatory RWAs. Barclays believes that its end-state
target range will be about 12.0%, although this calibration is subject to the finalization of regulatory rules.
Barclays had regulatory RWAs of £396 billion at end of the first quarter 2015 and has guided to stay broadly at this
level, albeit with some fluctuations. This is in line with the £400 billion target for end-2016, marking a reduction from
£440 billion at end-2013. In terms of individual business units, non-core RWAs will fall to about £45 billion from a
starting point of £110 billion. RWAs will remain flat in the core investment bank at around £120 billion, but core retail
and commercial banking activities will rise by about £20 billion to £230 billion. The regulatory RWA targets have to be
met despite likely RWA inflation related to methodology changes.
For U.K. banks, at this time, we are more focused on statutory earnings in view of the significant role of nonrecurring
items, including customer redress provisions related to payment protection insurance (PPI) and wholesale
banking-related litigation. Barclays has stated that as of the end of the first quarter of 2015, it had unutilized PPI
provisions of £943 million following the addition of another £150 million in the quarter. While the volume of claims
appears to be declining across the industry, it remains far from clear how fast and how long this process will be. As a
result, we assume in our analysis that Barclays will require further provisions (we make the same assumption for most
other U.K. banks). We also note that settlements related to foreign exchange and ISDA fix for approximately £1.6
billion announced on May 20, 2015, were fully covered by the £2.05 billion of litigation provisions on the balance
sheet. That said, we assume that further charges will likely be necessary as a number of other pending investigations
proceed toward resolution.
Looking at our calculation of Barclays' core earnings (which strips out these and other exceptional items), it appears
that Barclays' earnings in 2014 were below average. Barclays ratio of core earnings to operating revenues was 10.4%
in 2014 (the U.K. peer median was about 26%). Our analysis assumes that Barclays' core earnings to operating
revenues will improve to about 20% over the following two years.
We consider the quality of capital to be satisfactory. Adjusted common equity represents 85% of TAC; issuance of
TAC eligible hybrids will likely reduce this proportion, but we expect the ratio to remain above 80%.
Table 3
Barclays Bank PLC Reconciliation Of Total Adjusted Capital
Year-ended Dec. 31
(Mil. £) 2014 2013
Common shareholders' equity (as reported by the company) 55,245 53,322
(+) Minority interest-equity 2,733 1,932
(-) Dividends (not yet accrued or distributed) (615) (572)
(-) Revaluation reserves (2379) (421)
(-) Goodwill and nonservicing intangibles (8180) (7685)
(-) Interest-only strips
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 8
1412415 | 301240661
Barclays Bank PLC
Table 3
Barclays Bank PLC Reconciliation Of Total Adjusted Capital (cont.)
(-) Tax loss carryforwards (1315) (1235)
(+/-) Postretirement benefit adjustments - -
(+/-) Cumulative effect of credit-spread related revaluation of liabilities (658) (806)
(+/-) Other adjustments - -
= Adjusted common equity (ACE) 46,147 46,147
(+) Preferred stock and hybrid capital instruments (subject to our limits) 7,980 8,045
= Total adjusted capital (TAC) 54,127 54,192
Table 4
Barclays Bank PLC Capital And Earnings
Year-ended Dec. 31
(%) 2014 2013 2012 2011 2010
Tier 1 capital ratio 13.0 15.7 13.3 12.9 13.5
S&P RAC ratio before diversification 8.2 8.3 7.3 7.6 7.1
S&P RAC ratio after diversification 10.1 10.6 8.8 9.4 8.6
Adjusted common equity/total adjusted capital 85.3 85.2 86.4 86.7 85.5
Net interest income/operating revenues 46.9 41.1 39.9 42.8 40.3
Fee income/operating revenues 31.7 31.0 29.4 30.2 28.5
Market-sensitive income/operating revenues 19.7 25.2 28.3 24.1 28.9
Noninterest expenses/operating revenues 65.0 64.8 61.0 64.7 60.9
Preprovision operating income/average assets 0.7 0.7 0.7 0.7 0.8
Core earnings/average managed assets 0.2 0.2 0.5 0.3 0.3
Table 5
Barclays Bank PLC Risk-Adjusted Capital Framework Data
(Mil. £) Exposure*
Basel III
RWA
Average Basel III
RW (%)
Standard &
Poor's RWA
Average Standard &
Poor's RW (%)
Credit risk
Government and central banks 118,301 3,888 3 8,285 7
Institutions 39,312 10,663 27 10,874 28
Corporate 191,066 108,463 57 157,190 82
Retail 277,195 90,313 33 170,986 62
Of which mortgage 187,643 37,325 20 79,092 42
Securitization§ 21,905 5,313 24 75,598 345
Other assets 115,659 21,000 18 76,286 66
Total credit risk 763,438 239,638 31 499,218 65
Market risk
Equity in the banking book† 2,983 4,063 184 17,282 579
Trading book market risk -- 36,563 -- 53,818 --
Total market risk -- 40,625 -- 71,099 --
Insurance risk
Total insurance risk -- -- -- 0 --
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 9
1412415 | 301240661
Barclays Bank PLC
Table 5
Barclays Bank PLC Risk-Adjusted Capital Framework Data (cont.)
Operational risk
Total operational risk -- 56,660 -- 89,507 --
(Mil. £)
Basel III
RWA
Standard &
Poor's RWA
% of Standard &
Poor's RWA
Diversification adjustments
RWA before diversification -- 401,900 -- 659,825 100
Total diversification/concentration
adjustments
-- -- -- -125,798 -19
RWA after diversification -- 401,900 -- 534,027 81
(Mil. £)
Tier 1
capital Tier 1 ratio (%)
Total adjusted
capital
Standard & Poor's
RAC ratio (%)
Capital ratio
Capital ratio before adjustments -- 41,453 10.3 54,127 8.2
Capital ratio after adjustments‡ -- 41,453 10.3 54,127 10.1
*Exposure at default. §Securitisation Exposure includes the securitisation tranches deducted from capital in the regulatory framework. †Exposure
and Standard & Poor's risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions. ‡Adjustments
to Tier 1 ratio are additional regulatory requirements (e.g. transitional floor or Pillar 2 add-ons). RWA--Risk-weighted assets. RW--Risk weight.
RAC--Risk-adjusted capital. Sources: Company data as of Dec. 31, 2014, Standard & Poor's.
Risk position: Well-managed loan portfolio but substantial pockets of potential risk
We consider Barclays' risk position to be "adequate," which is a better assessment than a number of global banks with
large investment banking operations. This view is supported by our opinion that Barclays' risk management
capabilities have generally held up well against peers over many years (despite a fairly aggressive overall business
strategy at times in the past), and our belief that the credit quality of its large domestic loan book compares well with
most peers. The main constraint on the risk position assessment is the complex risks taken by the investment banking
division. Residual assets in the non-core division do not materially alter our view of the overall quality of Barclays'
assets (the majority of which are trading assets such as long-dated derivatives), and we note that our projected RAC
ratio already factors in a range of exceptional items.
Like most banks, Barclays has imposed tight controls around balance sheet growth in recent years. For example,
reported net customer loans are little changed today from year-end 2008. The planned reduction in RWA, as a result of
the updated strategy, is weighted towards trading assets. We assume broadly flat loan balances to persist over the next
two years as non-core loan reductions are offset by credit growth in its U.K. banking businesses, Barclaycard, and
Africa.
Our risk position assessment takes into account the complexity of Barclays' investment banking business. We note that
the bank engages heavily in the derivatives and trading markets and ultimately relies on the strengths of its
counterparties for this business and various other business segments. Barclays uses a range of risk and stress measures
to manage trading market risk. Measures of traded market risk reduced in 2014 due to lower market volatility and
de-risking in the non-core division. Its reported average one-day 95% value-at-risk was £22 million, down from £29
million in 2013 and from £38 million in 2012. Other indicators also indicated a lower risk appetite with, for example,
average daily trading revenues falling 22% to £32 million from £41 million in 2013. In 2014, 98% of trading days
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 10
1412415 | 301240661
Barclays Bank PLC
generated positive revenues (compared to 97% in 2013).
The 19% RAC diversification demonstrates the spread of Barclays' activities by business line, geography, and risk type.
The RAC does not capture the nontrading market risk of Barclays' large defined-benefit pension fund exposure.
We consider Barclays' large loan portfolios to be well controlled for the most part, but note that it has incurred large
losses outside the U.K. For 2009-2013, international loans accounted for an average 52% of total impairment charges.
We expect the share of losses from the group's international portfolios to decline with the run-off of non-core assets.
At 48 bps, Barclays' loan loss rate (new loan loss provisions-to-average customer loans) in 2014 was down from 67 bps
in 2013 and well below its long-run average loan loss rate of around 88 bps. Barclays' loan loss rate compared with
that of some peers reflects the weight of relatively higher risk, higher margin businesses such as credit cards,
commercial banking, and subsidiaries in Africa. In its PCB loan book, Barclays continues to perform relatively well. For
example, loss rates on its domestic mortgage book are consistently below peers'. However, Barclays has a higher
weighting of consumer credit in its loan book (about 15%) than its peers.
Chart 2
As a global bank, Barclays is exposed to a range of emerging country- and sector-specific risks. As of end-2014, the
group's net exposures (including off-balance-sheet exposures) to peripheral eurozone countries were £52.9 billion,
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 11
1412415 | 301240661
Barclays Bank PLC
down 17% from the year before. Of this, exposure to Greece was a negligible £27 million. Net exposure to Russia at
end-2014 was £1,943 million, mainly consisting of loans and advances to financial institutions of £1,076 million.
Although Barclays' direct exposure to these pockets of risk is manageable, in our view, the group is not immune to
contagion or indirect risks in case of localized or systemic shocks.
Table 6
Barclays Bank PLC Risk Position
Year-ended Dec. 31
(%) 2014 2013 2012 2011 2010
Growth in customer loans (0.2) (0.2) (1.5) 0.4 2.1
Total diversification adjustment / S&P RWA before diversification (19.0) (21.3) (16.9) (19.7) (17.1)
Total managed assets/adjusted common equity (x) 29.4 28.4 35.5 36.3 35.6
New loan loss provisions/average customer loans 0.48 0.67 0.78 0.82 1.24
Net charge-offs/average customer loans 0.6 0.7 0.8 1.1 0.9
Gross nonperforming assets/customer loans + other real estate owned 2.4 3.3 4.4 5.0 7.5
Loan loss reserves/gross nonperforming assets 50.4 48.0 47.4 45.3 35.8
Funding and liquidity: Granular deposit franchise
We regard Barclays' funding as "average" and its liquidity position as "adequate."
The funding profile is underpinned by Barclays' strong deposit franchise. Barclays' loan-to-deposit ratio, by our
measures, stood at 104.7% as of Dec. 31, 2014, broadly unchanged from 105% at year-end 2013. However, these levels
represent a material improvement from 130% at year-end 2010. Deposit growth, small acquisitions, subdued net new
lending, and strategy changes have reduced Barclays' reliance on wholesale funding over this period. Our calculation
of Barclays' stable funding ratio of 101.2% at year-end 2014 is consistent with these factors, and we expect this ratio to
improve modestly with the further wind-down of the non-core division.
As of the end of 2014, core customer deposits comprised about 52% of Barclays' funding profile by our metrics, below
some peers that have large investment banking arms. However, deposits exceed loans in the retail and commercial
banking businesses. Barclays states that its estimated Basel III net stable funding ratio was 102% at year-end 2014.
Barclays Investment Bank is an active borrower in confidence-sensitive wholesale markets. The investment bank funds
the majority of its inventory on a secured basis, and its short-term unsecured borrowing primarily funds Barclays'
liquidity portfolio. Barclays states that as of March 31, 2015, total group wholesale funding outstanding excluding
repos (which is a significant figure) was £178 billion.
Barclays' group liquidity pool (portfolio of unencumbered cash, central bank deposits, and government and
supranational bonds) totaled £148 billion as of March 31, 2015. Our calculation of Barclays' broad liquid assets to
short-term wholesale funding at year-end 2014 was 1.2x, and we expect this metric to remain sound. We also note that
Barclays states that its estimated Basel III LCR ratio was 122% as of March 31, 2015.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 12
1412415 | 301240661
Barclays Bank PLC
Table 7
Barclays Bank PLC Funding and Liquidity
Year-ended Dec. 31
(%) 2014 2013 2012 2011 2010
Core deposits/funding base 52.3 47.3 40.8 38.5 34.4
Customer loans (net)/customer deposits 104.7 105.0 116.1 124.0 130.2
Long term funding ratio 68.3 61.5 58.6 56.0 51.8
Stable funding ratio 101.2 97.3 98.9 95.1 91.8
Short-term wholesale funding/funding base 34.0 40.9 43.8 46.7 50.7
Broad liquid assets/short-term wholesale funding (x) 1.2 1.0 1.0 1.0 0.9
Net broad liquid assets/short-term customer deposits 12.9 3.8 5.1 (2.0) (9.8)
Short-term wholesale funding/total wholesale funding 69.8 76.3 73.2 75.0 76.5
Narrow liquid assets/3-month wholesale funding (x) 1.3 1.1 1.1 1.0 1.1
External support: ALAC has replaced government support in U.K. bank ratings
In our view, Barclays has high systemic importance in the U.K. Since June 2015, we have regarded the prospect of
extraordinary government support for U.K. banks as "uncertain" in view of the country's well-advanced and effective
resolution regime. As a result, systemic banks are not eligible for notching uplift for possible future U.K. government
support.
We have added one notch of uplift to the long-term rating on Barclays because we consider that it is likely to increase
its ALAC above our 5.25% threshold over a two-year projection period. We view the U.K. resolution regime as
"effective" under our ALAC criteria because, among other factors, we believe it contains a well-defined bail-in process
under which authorities would permit non-viable systemically important banks to continue critical functions as going
concerns following a bail-in of eligible liabilities.
We include the majority of the consolidated Barclays group's junior and non-operating holding company (NOHC)
instruments in our ALAC assessment because, over our projection period, we believe they have capacity to absorb
losses without triggering a default on Barclays' senior obligations. We exclude certain instruments issued in
jurisdictions not yet deemed to have an "effective" resolution regime and/or under foreign law (for example,
instruments issued by Barclays Africa Group Ltd.). On this basis, we calculate that ALAC was 4.4% of Standard &
Poor's RWAs at year-end 2014. We believe this ratio is likely to increase beyond 5.25% as future regulatory
requirements appear likely to oblige Barclays to increase the buffer of instruments that we expect will be
ALAC-eligible. We expect the ratio to be 5.5%-6.0% by end-2015 and 6.0%-6.5% by end-2016.
Consistent with our criteria, we raised the threshold for one notch of ALAC uplift by 25 bps to 5.25% because Barclays
operates through multiple regulated legal entities worldwide and we believe this might constrain the flexible
deployment of ALAC in a stress scenario.
Additional rating factors: None
No additional factors affect this rating.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 13
1412415 | 301240661
Barclays Bank PLC
Group structure, rated subsidiaries and hybrids
Barclays PLC is the ultimate holding company of the group that it heads, and is a NOHC.
Barclays PLC operates through one principal operating subsidiary: Barclays Bank PLC. We continue to see Barclays
Bank PLC as "core" to Barclays PLC and expect that regulators would intervene at the point of non-viability, bailing-in
junior liabilities and, if necessary, NOHC liabilities, to ensure that senior obligations are honored. Our ratings on
Barclays Bank PLC and its core subsidiaries are therefore in line with the ALAC-supported GCP.
We do not include notches for ALAC support in the ratings on NOHCs because we do not believe that their senior
obligations would continue to receive full and timely payment in a resolution scenario. As a result, we rate Barclays
PLC one notch below the 'bbb+' unsupported GCP.
We notch the hybrid capital instruments issued by the above entities and related special-purpose entities down from
the unsupported GCP in accordance with table 2 of our bank hybrid criteria, depending on their features (see "Bank
Hybrid Capital And Nondeferrable Subordinated Debt Methodology And Assumptions," published Jan. 29, 2015). In all
cases, the instruments issued by, or relying on a guarantee from, the NOHC have ratings that are one notch below the
equivalent instrument issued by an operating company.
Related Criteria And Research
Related Criteria
• Bank Rating Methodology And Assumptions: Additional Loss-Absorbing Capacity, April 27, 2015
• Bank Hybrid Capital And Nondeferrable Subordinated Debt Methodology And Assumptions, Jan. 29, 2015
• Group Rating Methodology, Nov. 19, 2013
• Assessing Bank Branch Creditworthiness, Oct. 14, 2013
• Revised Market Risk Charges For Banks In Our Risk-Adjusted Capital Framework, June 22, 2012
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
• Bank Capital Methodology And Assumptions, Dec. 6, 2010
• Use Of CreditWatch And Outlooks, Sept. 14, 2009
Related Research
• Banking Industry Country Risk Assessment: U.K., July 2, 2015
• U.K. Bank Ratings Affirmed On Reducing Credit Risk In The Economy, July 2, 2015
• S&P Takes Various Rating Actions On Certain U.K. And German Banks Following Government Support And ALAC
Review, June 9, 2015
• Barclays Bank Ratings Lowered To 'A-/A-2' On Government Support Review And ALAC Criteria Implementation,
June 9, 2015
Ratings Detail (As Of July 2, 2015)
Barclays Bank PLC
Counterparty Credit Rating A-/Stable/A-2
Greater China Regional Scale cnAA/--/--
Certificate Of Deposit
Foreign Currency A-/A-2/A-2
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 14
1412415 | 301240661
Barclays Bank PLC
Ratings Detail (As Of July 2, 2015) (cont.)
Local Currency A-/A-2
Junior Subordinated BB
Junior Subordinated BB+
Junior Subordinated BBB-
Preference Stock BB
Senior UnsecuredGreater China Regional Scale cnAA
Senior Unsecured A-
Short-Term Debt A-2
Subordinated BB+
Subordinated BBB-
Counterparty Credit Ratings History
09-Jun-2015 A-/Stable/A-2
03-Feb-2015 A/Watch Neg/A-1
29-Apr-2014 A/Negative/A-1
02-Jul-2013 A/Stable/A-1
05-Jul-2012 A+/Negative/A-1
29-Nov-2011 A+/Stable/A-1
09-Jun-2015 Greater China Regional Scale cnAA/--/--
03-Feb-2015 cnAA+/Watch Neg/--
02-Jul-2013 cnAA+/--/--
31-May-2013 cnAAA/--/--
Sovereign Rating
United Kingdom AAA/Negative/A-1+
Related Entities
Absa Bank Ltd.
Issuer Credit Rating
Local Currency NRpi/--/--
Barclays Bank Ireland PLC
Issuer Credit Rating A-/Stable/A-2
Barclays Bank Mexico S.A.
Issuer Credit Rating
CaVal (Mexico) National Scale mxAAA/Stable/mxA-1+
Barclays Bank plc (Madrid Branch)
Issuer Credit Rating A-/Stable/A-2
Barclays Bank plc (Milan Branch)
Issuer Credit Rating A-/Stable/A-2
Barclays Capital Inc.
Issuer Credit Rating A-/Stable/A-2
Barclays PLC
Issuer Credit Rating BBB/Stable/A-2
Junior Subordinated B+
Senior Unsecured BBB
Subordinated BB+
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 15
1412415 | 301240661
Barclays Bank PLC
Ratings Detail (As Of July 2, 2015) (cont.)
Barclays Private Clients International Ltd.
Issuer Credit Rating A-/Stable/A-2
Barclays US Funding LLC
Commercial Paper
Foreign Currency A-2
Senior Unsecured A-
Short-Term Debt A-2
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable
across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and
debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 16
1412415 | 301240661
Barclays Bank PLC
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P
reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,
www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com
(subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information
about our ratings fees is available at www.standardandpoors.com/usratingsfees.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective
activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established
policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain
regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P
Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any
damage alleged to have been suffered on account thereof.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and
not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase,
hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to
update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment
and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does
not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be
reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part
thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval
system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be
used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or
agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not
responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for
the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL
EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING
WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no
event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential
damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by
negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Copyright © 2015 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. All rights reserved.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JULY 2, 2015 17
1412415 | 301240661