Moody's on Feb. 22 placed certain ratings of HSBC Bank Plc and Barclays Plc and unit Barclays Bank Plc on review for downgrade, due to the potential impact of a U.K. regulation requiring banks to separate their investment arms from their retail operations beginning Jan. 1, 2019.
Moody's placed on review the HSBC Holdings Plc unit's Aa3 long-term issuer, bank deposit and senior unsecured debt ratings, "baa1" baseline credit assessment, "a2" adjusted baseline credit assessment and Aa2(cr) long-term counterparty risk assessment. The subsidiary's Prime-1 short-term bank deposit rating and P-1(cr) short-term counterparty risk assessment were affirmed.
Also placed on review for downgrade were Barclays' Baa2/Prime-3 long- and short-term issuer ratings and Baa2 senior unsecured debt rating and Barclays Bank's A1/Prime-1 long- and short-term bank deposit ratings, A1 long-term issuer and senior unsecured debt ratings, "baa2" baseline and adjusted baseline credit assessment and A1(cr) long-term counterparty risk assessment. Barclays Bank's P-1(cr) short-term counterparty risk assessment was affirmed.
Both HSBC Bank and Barclays Bank are reorganizing their legal structures to separate their respective retail and business banking businesses from other operations under Britain's ring-fencing regulation. HSBC will create HSBC Bank UK and Barclays will create Barclays Bank UK as their respective ring-fenced banks.
As a result, both HSBC Bank and Barclays Bank will become the non-ring-fenced bank of HSBC and Barclays, respectively, further increasing both units' dependence on wholesale and capital market activities, which Moody's considers as riskier and more volatile.
The rating agency expects to conclude its review on HSBC Bank by April and on Barclays Bank over the next few weeks, respectively. During the review, Moody's will assess the stand-alone credit profiles of HSBC Bank, Barclays Bank and the broader Barclays group; the potential for intragroup support; the expected loss for each instrument class under its advanced loss-given-failure analysis; and the likelihood of government support for these entities.