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Moody’s, S&P cut Barclays outlook to negative

LONDON — Two leading credit rating agencies took steps on Thursday towards downgrading Barclays in the wake of a trading scandal that’s seen three senior officials, including chief executive Bob Diamond, hand in their resignations.

Though both Moody’s and Standard & Poor’s maintained their ratings on the bank, they lowered their outlooks to ‘negative’ from ‘stable’. That means that a downgrade of the actual rating is now more likely.

Barclays did receive some respite from another of the three big agencies, Fitch Ratings, which said its view was unaltered by the interest rate scandal and resignations. Although Fitch said political, regulatory and reputation risks for Barclays and other major global banks had increased, it added “the direct implications (for Barclays), in terms of the size of the regulatory settlements announced last week, are easily manageable given its capital and earnings capacity.”

The other two agencies took a less generous view.

S&P said its revised outlook reflected, in part, “our view that the impact on Barclays’ overall franchise may persist for an extended period, which in turn could lead to both weaker and less stable revenue generation.”

And, Moody’s said its change reflected concerns that the resignations of Diamond, chairman Marcus Agius and chief operating officer Jerry del Missier, and the consequent uncertainty about the company’s direction could negatively impact on bondholders.

The three men resigned in the wake of last week’s action by US and British agencies to fine Barclays $435 million for making false submissions on borrowing costs, which along with data from other banks sets a key financial benchmark, the London interbank offered rate (Libor).

“The bank could be challenged to replace the three senior staff and in particular find a new CEO who not only has a sufficient understanding of the investment banking business to run Barclays, but also has the credibility and ability to swiftly address the weaknesses that the Libor incident revealed and stakeholders’ perceptions of the investment bank,” Moody’s said.

Moody’s said the resignations could lead to pressure on the bank “to shift its business model away from investment banking and reform perceived failures in its business culture.”