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Nov 8 (Reuters) - (The following statement was released by the rating agency)
This announcement corrects the version published on 4 November to clarify buffer requirements.
Fitch Ratings has assigned Barclays plc's (A/Stable/F1/a) potential issue of perpetual subordinated contingent convertible securities (CCS) an expected rating of 'BB+(EXP)'.
The final rating is contingent on receipt of final documentation conforming to information already received.
KEY RATING DRIVERS
The CCS are additional Tier 1 (AT1) instruments with fully discretionary interest payments and are subject to conversion into Barclays plc ordinary shares on breach of a consolidated 7% CRD IV common equity Tier 1 (CET1) ratio, which is calculated on a 'fully loaded' basis.
The securities are rated five notches below Barclays plc's 'a' Viability Rating (VR), in accordance with Fitch's criteria for "Assessing and Rating Bank Subordinated and Hybrid Securities" (dated 5 December 2012). The CCS are notched twice for loss severity to reflect the conversion into ordinary shares on breach of the trigger, and three times for non-performance risk.
The notching for non-performance risk reflects the instruments' fully discretionary interest payment, which Fitch considers the most easily activated form of loss absorption. The issuer shall not make an interest payment if it has insufficient distributable items or if it is insolvent. The issuer will also be subject to restrictions on interest payments if it fails to meet the combined buffer capital requirements that will be phased in from 2016.
Barclays' end-September 2013 fully loaded Basel III CET1 ratio stood at 9.6% (including the GBP5.8bn capital increase completed in October 2013), which provided a sizeable GBP11.8bn buffer for the 7% CET1 ratio trigger. However, Fitch expects that non-performance due to non-payment of interest would likely be triggered before reaching the 7% CET1 ratio trigger, most likely if the combined buffer requirement was breached. The combined buffer requirements are phased in at 25% per annum from 1 January 2016. The headroom above the estimated final minimum combined buffer requirement of 9%, applicable from 1 January 2019, was GBP3bn at end-September 2013. Barclays plans to strengthen its fully loaded CET1 ratio to at least 10.5% by early 2015, which would significantly increase this headroom.
The combined buffer requirements for Barclays could change over time, and additional buffers, for instance in the form of countercyclical buffers, could be introduced. The UK regulator has also consulted on whether part of banks' Pillar 2 requirements should be covered by CET1 capital rather than by total regulatory capital, as is currently the case. Fitch expects Barclays to be able to meet its capital requirements, including its leverage ratio requirements and regulatory expectations, and the bank has stated that it plans to operate with a CET1 ratio that is about 1.5 percentage points above current total regulatory requirements.
Fitch has assigned 100% equity credit to the securities. This reflects their full coupon flexibility, the ability to be converted into common equity well before the bank would become non-viable, the permanent nature and the subordination to all senior creditors.
RATING SENSITIVITIES
As the securities are notched from Barclays plc's VR, their rating is sensitive to any change in this rating, which itself is currently in line with Barclays Bank plc's VR, as analysed under our 'Rating FI Subsidiaries and Holding Companies' criteria (10 August 2012). The securities' ratings are also sensitive to any change in their notching, which could arise if Fitch changed its assessment of the probability of their non-performance relative to the risk captured in Barclays plc's VR. This could reflect a change in capital management or flexibility or an unexpected shift in regulatory buffers, for example.
