Barclays credit outlook downgraded

Bob Diamond supportersBritish banking giant Barclays has seen its credit rating outlook downgraded to negative to reflect concerns over the impact of Bob Diamond's shock resignation.

Ratings agency Moody's said the departure of Mr Diamond, as well as chairman Marcus Agius and chief operating officer Jerry del Missier, in the wake of the rate-rigging scandal could lead to the break up of its powerhouse investment arm.
The cut - from stable to negative - comes ahead of a vote among MPs to decide whether Parliament or a judge should stage an investigation into the Libor-fixing affair, while George Osborne has accused Labour of being "clearly involved" in it.

Ex-Barclays chief executive Mr Diamond admitted on Wednesday feeling "physically ill" when he discovered traders had fiddled the key rate but denied he was "personally culpable" for their actions.

Explaining its decision, Moody's said shareholder and political pressures could "lead to broader pressure on the bank to shift its business model away from investment banking and reform perceived failures in its business culture".

The agency added: "Although this could have potentially positive implications over the longer term, the uncertainty surrounding such a change in direction is credit negative in the short term.

"In addition, Moody's believes that the bank could be challenged to replace the three senior staff and in particular find a new chief executive 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 that Barclays' ratings could come under further pressure if the bank proves unable to restore a stable management structure over the coming months.

Another top ratings agency, Fitch, said the impact of the Libor investigation does not currently alter its view on Barclays' credit ratings. The agency said political, regulatory and reputation risks for Barclays had increased due to the resignation of senior figures, settlements with regulators and the ongoing investigation into Libor practices. But it said the long-term implications are unclear.

The resignations do create risk, Fitch said, but it added that Barclays is a large firm with experienced managers capable of running its various businesses day-to-day.

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