Agencies downgrade credit outlook

BarclaysEmbattled banking giant Barclays has been dealt another blow as two key credit ratings agencies said the loss of its chief executive could threaten its financial health.

Moody's and Standard and Poor's both downgraded the outlook for the bank's credit rating from "stable" to "negative" to reflect concerns over Bob Diamond's departure.

The agencies warned the resignation of Mr Diamond, plus 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. But rival agency Fitch said it was "premature" to speculate about the impact.

A downgrade to Barclays' actual credit rating in the future would lead to higher costs for the bank at a time when all lenders are struggling to secure funding. Higher funding costs at Barclays could lead to higher costs for its customers on the accounts, loans or mortgages they hold.

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."

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. Standard and Poor's made its move shortly after Moody's.

But Fitch said the impact of the Libor investigation does not currently alter its view on Barclays' credit ratings. It 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.

The agency said: "It is premature to speculate about any change in strategic direction by new senior executives. Fitch's view is that the near-term focus of a new team will be on issues of corporate governance, risk management, operational controls and regulatory compliance."
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