According to research published by Moody’s Investor Services, the downsizing of Barclays’ investment bank activities, litigation and conduct charges and restructuring costs have all contributed to limiting the bank’s profitability, which is constraining the firm’s ability to absorb unexpected losses when its restructuring has completed.
Moody’s noted that Barclays would need achieve additional revenues and cost reductions in order to enable the bank to score a credit positive.
It said Barclays was ‘far from achieving stable profitability in line with plan targets’, as the bank was forced to pay out £2.4bn in litigation and conduct charges in 2014 and a further £1.8bn in the first half of 2015. However, it noted that operating costs had decreased in recent quarters, and said Barclays would need to decrease core operating costs to £14.5bn by 2016 in order to build on this progress.
The report also expressed concerns over the execution risk of the group’s restructuring plan, as the bank is still subject to ongoing regulatory reviews which could trigger further costs.
Moody’s said: “This litigation could result in considerable additional charges and earnings volatility that are outside the firm’s control and which would counteract any efficiency gains.”
Barclays refused to comment when contacted.
