Barclays Credit-Rating Threat as Lawmakers Vote on Probe

Barclays Credit-Rating Threat as Lawmakers Vote on Probe
A Barclays bank in London. Photographer: Chris Ratcliffe/Bloomberg

Barclays Plc’s credit ratings are under threat after its top three executives quit and lawmakers prepared to open an inquiry into the Libor-rate rigging scandal.

Moody’s Investors Service cut the outlook on the London-based lender’s standalone bank financial strength to negative from stable, according to a statement today. Standard & Poor’s followed, lowering the long-term rating outlook to negative. The ratings companies cited political pressure on the lender’s investment bank, and the departure of Chief Executive Officer Robert Diamond.

The executives stepped down after the lender was fined a record 290 million pounds ($452 million) for trying to rig the London interbank offered rate for profit. U.K. lawmakers will vote today on what type of inquiry they will hold into Barclays’s attempts to manipulate the benchmark.

“Hitherto, Barclays’ strong and stable management team and clear strategy have been supportive factors in our ratings assessment,” Standard & Poor’s said. “Diamond was closely related to the growth and relatively resilient performance of the investment bank.”

Barclays shares fell 0.4 percent to 165.30 pence at 11:05 a.m. in London trading today. They plunged 16 percent on June 28, the day after the bank’s settlement with regulators was announced. The stock is down 5.5 percent this year, making Barclays the worst performer in the six-member FTSE 350 banks index.

‘Political Pressures’

Lawmakers are poised to decide on the type of inquiry into Libor-manipulation, determining how deeply to examine the issue and how quickly changes to the law may follow. Members of Parliament will decide between a judge-led inquiry into the industry sought by opposition Labour Party leader Ed Miliband and the six-month-long lawmaker-led probe focused on Libor favored by Prime Minister David Cameron. A series of votes are scheduled for around 5 p.m. in London.

“Political pressures” could “lead to broader pressure on the bank to shift its business model away from investment banking,” Moody’s said. “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.”

Diamond, 60, joined Barclays in 1996 and as head of Barclays Capital oversaw the lender’s expansion in investment banking and the 2008 purchase of Lehman Brothers Holdings Inc.’s North American unit. He was named CEO in January 2011.

Agius, Del Missier

Diamond, Chairman Marcus Agius and Chief Operating Officer Jerry Del Missier also stepped down after regulators discovered bank employees had systematically attempted to rig the rate for profit. Diamond yesterday apologized to lawmakers for the rigging, blaming a group of 14 traders out of 2,000, and said the bank had failed in taking so long to uncover their actions. He said he didn’t know about their activities until a week before regulators published their findings, including e-mails between Barclays traders.

Standard & Poor’s affirmed the lender’s A+/A1 counterparty credit rating. Moody’s said the bank’s A2 senior debt rating remains unchanged.

“The standalone rating could be stabilized if Barclays restores a stable management structure,” Moody’s said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE