The ratings reflect Barclays’ business model, with inherently volatile investment banking activities being offset to some extent by more stable retail and business banking activities primarily in the UK. The ratings also take into account the need for management to execute on capital, leverage and financial targets.

In line with Scope’s bank rating methodology, the ratings on Barclays do not incorporate any additional notches for government support, as the agency considers a potential state-bailout scenario to be increasingly unlikely as European Union banking systems move towards a resolution and recovery framework which includes creditor bailin.

In its research on Barclays, Scope notes that the investment banking business accounts for nearly half of total earnings. While Barclays remains one of the few remaining global players, the industry faces increasing challenges. Positively, retail and business banking activities in the UK and the global card business help to stabilize Group earnings. However, conduct costs continue to hamper performance and amounted to GBP 2bn in 2013. The Group has embarked on the Transform program, which encompasses running Barclays the “right way” with the “right culture.” These institutional changes are likely to take time to become fully embedded.

Since the appointment of Antony Jenkins in August 2012, the Group has focused on optimizing its balance sheet and reducing costs in order to generate improved returns. As of year-end 2013, Barclays has largely met the national regulator’s somewhat more demanding capital and leverage targets. Furthermore, the Group continues to aim for higher capital and leverage levels, driven by evolving regulatory requirements – CRD 4 leverage target of 3.5% to 4.0% from year-end 2015 and a CET1 ratio of 11.5% to 12% in 2019.

As positive rating-change drivers, Scope mentions increased profitability from non-investment banking activities as well as meeting and sustaining leverage and capital targets. Meanwhile, negative rating-change drivers include the inability to address evolving regulatory changes such as the ring-fencing of certain activities in the UK and a material deterioration in the Group’s liquidity profile. Since the financial crisis, Barclays has strengthened its liquidity profile to better withstand potential shocks as its business model remains sensitive to market confidence. Customer deposits have increased and the reliance on wholesale unsecured funding has been reduced. Barclays states that its liquidity pool is sufficient to fund its business for an estimated 42 months with no access to wholesale markets.

Both the rating drivers and the rating-change drivers are detailed in Scope’s research on Barclays which supports the ratings.

The following ratings were assigned:

Barclays Bank plc
- Issuer Credit-Strength Rating (ICSR) at A. The ICSR represents a credit opinion on a bank’s ability to meet its contractual financial commitments on a timely basis and in full while remaining a going concern.
- Senior unsecured debt rating at A.

Barclays plc
- Senior unsecured debt rating at A.

In the near future Scope will rate Barclays’ short-term debt, as well as subordinated securities and capital instruments.

Scope said that the ratings assigned today to Barclays, as well as to 17 other large European banks, represent the first step in its rating coverage of the banking industry. The ratings assigned to Barclays are (i) based on public information, (ii) not solicited by the issuer and (iii) with issuer participation in the process.

The methodology used for the rating assessment is “Bank Rating Methodology” published in February 2014. The methodology used for the financial forecasts of the rating analysis is “Forecasting Bank Financials” published also in February 2014. These methodologies are available on www.scoperatings.com.