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FutureStarrBarclays Gives a Hold Rating to OceanaGold OCANF
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Barclays Bank has been an impressive performer, ranking 71st on the Financial System Benchmark and 40th in Northern Europe. Additionally, its ranking for respecting planetary boundaries and adhering to societal conventions places it among the top 20% of financial institutions assessed.
Barclays is a well-rounded bank, with revenue generated across retail banking, private banking, investment banking and wealth management. Furthermore, it operates an expansive trading and capital market business which may pose earnings volatility.
The company's business model has enabled it to report resilient earnings while maintaining healthy asset quality metrics and a sound capital ratio. It would be downgraded if the gross impaired loan ratio exceeded 3% for an extended period of time or the CET1 ratio (excluding IFRS 9 transitional relief) fell below 13% without an immediate plan to restore this level.
Furthermore, the group's credit risk profile could be adversely affected by the economic downturn, potentially leading to a large increase in provisions for loan losses. It has already increased its provision for loan losses by 4x this year alone; however, should economic conditions worsen further, then these increases could become even larger.
Provisioning for credit losses will become more expensive in 2019, potentially impacting profitability. Furthermore, Barclays holds a large portfolio of consumer, commercial and wealth management loans - more than $380 billion in FY 2019 - which could become more costly to repay if the economy continues its downward spiral.
Furthermore, it may experience difficulty raising funding from external sources, potentially impacting its ability to pay interest payments on debt and maintain liquidity. It also has a relatively high weight in corporate & investment banking (CIB) sector, meaning it could be particularly vulnerable during periods of economic downturn due to exposure to cyclical markets.
Barclays has a longstanding presence in the United Kingdom and is one of the world's largest banks. Headquartered in London, its primary activities span retail and commercial banking, global equities trading, and corporate insolvency (CIB). Barclays has significant operations throughout North America, Asia, and the Middle East.
Barclays has been a ratings giant for well over a century. During that time, it has amassed an impressive portfolio of assets and earned itself an excellent reputation for customer service. Today, it ranks as one of the world's largest banks with operations spanning 150 countries and assets totalling approximately $340 billion.
The company boasts a robust UK retail franchise and strong US operations. Its funding profile is strong, mostly from granular deposits. But perhaps its greatest asset is its ambitious new PS1.5bn London hub which will house cutting-edge digital bank and retail operations as well as numerous commercial property and insurance products.
The company recently debuted the industry's first micro-finance scheme, which has already attracted a substantial number of investors. Furthermore, they have an effective debt restructuring programme in place that is expected to be operational by early 2018. Their recent IPO has been well received in the market; their solid track record indicates they plan on growing their share in global banking over time.
Fitch Ratings today revised Barclays plc (Barclays) from negative to stable and affirmed its Long Term Issuer Default Rating (IDR) at 'A' as well as Viability Rating (VR) at 'A'. They also reaffirmed outlooks for subsidiaries such as Barclays Bank UK PLC and Barclays Bank plc. The VR takes into account Barclays' diversified financial profile with strong franchises in UK retail, cards, corporate & investment banking (CIB), plus revenue mix across products and geographies which has supported resilient earnings since pandemic began. Furthermore, ratings are supported by solid capitalisation levels along with solid funding/liquidity profile.
The VR is highly vulnerable to a sustained setback in economic recovery, which would require Barclays' cost-to-income ratio to be worse than currently anticipated and evidence of an increase in common equity double leverage above 120% - though we do not anticipate this outcome. Furthermore, we worry that Barclays could increase its risk appetite to boost profitability soon, leading to increased RWA allocation to investment banking activities or higher-risk credit exposures which could result in an increase in nonperforming loans (NPLs) or other negative credit trends for the group.
Barclays' IDR could be upgraded if its funding & liquidity score improves to an 'A-' or higher, or if the group increases its RWA allocation for investment banking activities while maintaining healthy capital metrics and consistently strong asset quality performance. However, we do not believe achieving an 'F1' Short Term IDR is achievable if AT1 and Tier 2 debt increase sustainably above 10% of RWAs.