Barclays rating cut after ring-fencing move

Moody's move after British bank separated its investment banking activities from retail operations to comply with new rules

Barclays rating has been cut to one above junk by Moody's. Dado Ruvic/Reuters

Barclays’s debt ratings were cut to one level above junk by Moody’s Investors Service on Wednesday, after the British bank separated its investment banking activities from retail operations to comply with new rules.

Credit ratings for some of the biggest British banks could also be affected by the post-crisis rules, known as ring-fencing, Moody’s said. Banks in the nation are obliged to meet the rules by the beginning of next year. Lower credit ratings can lift a company’s borrowing costs.

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Barclays changed its legal structure this month to comply with ring-fencing rules, which were designed to protect consumers’ cash by pushing potentially riskier banking businesses further away from retail depositors’ funds. Moody’s said it expects the change to result in bigger swings in earnings for the firm’s capital markets business.

The ratings downgrade reflects Moody’s assessment of the bank’s profile “in light of its ongoing profitability challenges, and the impact on existing creditors of the implementation of ring-fencing”, Moody’s senior vice president Andrea Usai said in the report.

Moody’s cut Barclays’ long-term issuer and senior unsecured debt ratings to Baa3, or one step above junk, from Baa2. The bond grader assigned a stable outlook to the ratings for Barclays.

Ring-fencing regulation “will affect a small number of large UK banking groups, including Barclays”, according to the report.