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Barclays Ratings Affirmed by Moody's with Stable Outlook

Moody's Investors Service, the rating services arm of Moody's Corporation MCO, affirmed the ratings of Barclays PLC BCS, Barclays Bank PLC and all affiliated companies.

Barclays' senior unsecured debt rating is Baa3/Prime-3; Barclays Bank's senior unsecured debt and deposits ratings are A2/Prime-1 and its Baseline Credit Assessment (BCA) is baa2. The outlook on the long-term senior unsecured and deposit ratings remain stable.

According to Alessandro Roccati, the lead analyst for Barclays at Moody's, the company’s strong franchises in UK retail and business banking and in global credit cards led to the affirmation of all ratings.

Moreover, Barclays’ track record of moderate asset risk, improved regulatory capital and leverage ratios along with its adequate funding and liquidity profiles further contributed to the ratings affirmation.

"These sound credit factors help to mitigate the weak profitability and high earnings volatility, driven by the current restructuring and run-down of the non-core unit, the exposure to significant litigation charges, and the decreased but still elevated proportion of revenues and earnings from capital markets activities," Roccati added.

Despite Barclays’ improved balance sheet metrics, Moody's showed concerns regarding the company’s credit profile in the near term, which continues to be under pressure due to the firm's ongoing restructuring and run-down of the non-core division as well as potential for high litigation charges.

However, positive pressures under Moody's Advanced Loss Given Failure (LGF) analysis along with Moody's expectations of improvement in Barclays' profitability, as the bank reduced the size of its non-core division and successfully refocused on its investment banking division, was reflected in the stable outlooks on all senior unsecured and deposit ratings.

In Moody's view, this would lead to improved profitability for the group as a whole, providing more stable internal capital generation, a benefit for bondholders.

"Barclays has come a long way in its continued efforts to restructure into a simpler and more focused bank and to strengthen its balance sheet metrics", Roccati explained. "However, the firm will continue to face significant profitability headwinds over the next eighteen months, driven by the accelerated rundown of the non-core division as well as outstanding litigation risks."

Barclays currently holds a Zacks Rank #2 (Buy).

Investors interested in the foreign banking space may also consider Erste Group Bank AG EBKDY and Grupo Financiero Galicia S.A. GGAL, both of which sport a Zacks Rank #1 (Strong Buy).

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