Barclays Ratings Upgraded by Moody's; Outlook Negative

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Moody's Investors Service, the rating services arm of Moody's Corporation MCO , upgraded the long-term issuer and senior unsecured debt rating of Barclays PLCBCS from Baa3 to Baa2. It also upgraded the long-term deposit and senior unsecured debt ratings of Barclays Bank PLC from A2 to A1. However, the outlook for the ratings remains negative.

Using an advanced Loss Given Failure analysis, which considers the company's September-end balance sheet, Moody's assessed that because of Barclays' issuance of loss-absorbing capital to date, both Barclays' senior unsecured and Barclays Bank's junior depositors and senior unsecured creditors face a lower-loss.

In fact, Moody's expects that the company will issue additional senior unsecured debt in the near term, which will help it in absorbing further loss for its creditors.

These are the reasons why Moody's upgraded the ratings for both Barclays and Barclays Bank.

The rating agency, however, believes that Barclays Banks' standalone credit profile continues to be under pressure because of the uncertain U.K. operating environment as a result of Brexit. It is of the opinion that as Barclays is trying to dispose its non-core assets and is dealing with litigation issues, its current profitability level remains sub-par. Hence, the negative ratings outlook continues for both Barclays and Barclays Bank.

According to Moody's estimates, Barclays needs to build up a significant stock of Total Loss Absorbing Capacity and approximately £30 billion of Minimum Requirement For Own Funds and Eligible Liabilities.

Moreover, during its third-quarter 2016 financial release, the company disclosed that it needs to issue at least £6 billion of loss-absorbing capital per annum so as to meet its end-state requirements by Jan 1, 2022.

Notably, any progress in the disposal of non-core assets and/or the settlement of material litigations may put an upward pressure on the rating outlook.

Shares of the company gained 26.7% over the last six months, outpacing the 20.9% growth for the Zacks categorized Foreign Banks industry.

Currently, Barclays sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

A couple of other stocks worth considering in the same space include Societe Generale Group SCGLY and Itaú Unibanco Holding S.A. ITUB .

Societe Generale has witnessed an upward earnings estimate revision of 11.4% for the current year, over the past 60 days. Moreover, its share price is up 6% year to date. It sports a Zacks Rank #1.

Itaú Unibanco currently carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of nearly 3% for the current year, over the past 60 days. Its share price is up 63.2% year to date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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