February 2, 2009 / 3:46 AM / 11 years ago

Moody's cuts Barclays' ratings

HONG KONG (Reuters) - Moody’s cut its long-term ratings on Barclays Bank by two notches to Aa3, citing expectations for “significant” further losses due to credit-related writedowns and rising impairments.

Snow covers a Barclays Bank sign in central London February 2, 2009. REUTERS/Dylan Martinez

Moody’s Investors Service maintained a stable outlook for the lender but lowered Barclays’ Bank Financial Strength Rating to C from B, with a negative outlook, and cut the bank’s hybrid instruments also by two notches to Aa3.

The action brings Barclays’ long-term ratings in line with Fitch, which on Wednesday cut the lender by one notch to AA-minus citing the expected earnings volatility from investment banking unit Barclays Capital and deteriorating economic growth in key areas of operation.

The downgrades come after the lender last week said it could absorb a 2008 writedown of 8 billion pounds without seeking capital from private investors or the state.

Barclays also stuck to its forecast that its 2008 pretax profit would be “well ahead” of 5.3 billion pounds, even after the expected writedowns. It reports earnings on February 9.

“The downgrades reflect Moody’s expectation of potentially significant further losses at Barclays as a result of writedowns on credit market exposures as well as an increase in impairments in the UK, which could weaken profitability and capital ratios,” the agency said in a statement out on Monday morning.

Like Fitch, Moody’s also noted the deteriorating economic outlook and the volatility in earnings from Barclays Capital, which recently acquired Lehman Brothers’ North American operations, as factors behind its downgrade.

Moody’s noted Barclays had a buffer for additional writedowns or losses of up to around 16-17 billion pounds in order to retain its new financial strength rating of C. The lender last week said its core tier 1 ratio was about 6.5 percent, while its tier 1 ratio was at around 9.5 percent.

Fears that the lender would be nationalised dented shares in Barclays last month, though they’ve recovered significantly since the lender last week reiterated its profit forecast.

Shares in Barclays still fell 31 percent in January.

“Although Barclays has not taken any government capital to date, Moody’s considers the systemic importance of the bank and the likelihood of receiving government support in case of need to be high,” the agency said in its statement.

The overall ratings cut won’t affect Barclays’ government-backed debt, which retains its Aaa rating.

Reporting by Rafael Nam; Editing by Nick Macfie

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