Ongoing profitability weakness at Barclays is limiting the bank’s ability to absorb unexpected losses, according to a Moody’s Investors Service report.
Looking at the bank’s restructuring process, the note stated that in line with its 2016 business plan targets, Barclays is making progress toward decreasing its reliance on volatile capital markets activities.
It also praised the bank for acting on other under-performing businesses, as well as reducing its overall risk profile and increasing the focus on businesses where it has scale and strength.
But the report warned that Barclays’ profitability remains constrained as a result of weak revenues, along with high litigation, conduct and restructuring costs, all of which limit its financial flexibility and heighten the execution risk associated with its business plan.
Alessandro Roccati, a Moody’s senior vice president and author of the report, said: “Given its limited albeit improving profitability, the most significant credit challenge for Barclays will be completing the multi-year restructuring of its core business, while pending high-profile litigation and regulatory reviews add tail risk.”
Barclays also faces additional structural changes to comply with the UK Banking Reform Act, the report noted.
Moody’s stated the current stable outlook for Barclays incorporates their analysts’ expectation that the bank will successfully implement its 2016 strategy. However, analysts warned unsuccessful or incomplete execution of the plan would be credit negative.
Last month FTAdviser reported FCA officials visited Barclays more than twice as often as any other bank in 2014.
In a response to a Freedom of Information request, the FCA said that Barclays had been visited some 186 times last year – a significantly higher number than for any other bank.
emma.hughes@ft.com
