Barclays Turmoil Could Lead to Downgrade, Moody's Warns

Ratings agency Moody's has threatened to downgrade Barclays' credit rating because of the turmoil at the top of the bank following the Libor scandal, and the difficulty of replacing key senior staff including the former chief executive Bob Diamond.

Moody's put Barclays under renewed pressure on Thursday by warning that it faces considerable uncertainty following "senior resignations at the bank". The agency also said it was concerned about the cultural changes needed at Barclays, the day after Diamond appeared before the Treasury select committee where it was claimed the City regulator was worried about the culture of the company.

Diamond quit on Tuesday along with close colleague Jerry del Missier who was promoted to chief operating officer only last month, while the chairman, Marcus Agius, will also go once he has replaced the chief executive following the £290m fine for manipulating Libor (the London Interbank Offered Rate).

"Specifically, the shareholder and political pressures on Barclays, which resulted in the resignation of the bank's CEO, chief operating officer (previously the head of the investment bank) and the stated intention of the chairman to resign, 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," Moody's said.

"In addition, Moody's believes that the bank could be challenged to replace the three senior staff and in particular find a new CEO who not only has a sufficient understanding of the investment banking business to run Barclays, but also has the credibility and ability to swiftly address the weaknesses that the Libor incident revealed and stakeholders' perceptions of the investment bank," the agency added.

The rating affected is the C-/baa2 standalone bank financial strength rating (BFSR) of Barclays, which Moody's has switched to a negative outlook from stable. This means it could be downgraded in the coming months unless the management uncertainty is resolved.

The closely watched A2 senior debt and deposit rating already had a negative outlook because of Moody's belief that the government is less likely to bailout banks in the past.

The ratings of the bank's subordinated debt might also be cut because the uncertainty about Diamond and del Missier's replacements will treat its investment banking arm - Barclays Capital. While the change in culture and shirt in investment banking "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.

The ratings agency issued its alert amid uncertainty about a warning that the Treasury select committee said had been raised by the Financial Services Authority only in February. The FSA is said to have raised cultural concerns about the bank and talked of a breakdown in relations with the regulator. Andrew Tyrie, the committee chairman, is asking the bank for details of the FSA's concerns.

This article was written by Jill Treanor, for guardian.co.uk on Thursday 5th July 2012 08.34 Europe/London