Barclays_Global_Banks_Moody_s_methodology_proposal_wide_effects_globally

This document is intended for institutional investors and is not subject to all of theindependence and disclosure standards applicable to debt research reports prepared for retailinvestors under U.S. FINRA Rule 2242. Barclays trades the securities covered in this report for itsown account and on a discretionary basis on behalf of certain clients. Such trading interestsmay be contrary to the recommendations offered in this report.Please see analyst certifications and important disclosures beginning on page 26.Global BanksMoody's methodology proposal:wide effects globallyThe proposal will affect banks in Europe much more than inother regions. In Europe, the ratings of smaller and/orperiphery banks may benefit more, while core banks aremore likely to face negative ratings action. In the US, we thinkGSIBs and trust banks face the highest risk of downgrade.• Moody's has proposed revising its global bank rating methodology. The changes areextensive, and Moody's expects them to affect the baseline credit assessments (BCA) of 131banks across Europe, North America, Asia, and the Middle East by +/- 1 notch. The changesappear to be relatively evenly balanced between upgrades and downgrades, but skewedgeographically, with about 60% of the changes concentrated on European banks.• Moody's made publicly available a new version of its ratings scorecard in Excel that reflectsthe changes in the proposal. This allowed us to input the quantitative metrics considered inthe new methodology into the tool and observe the scoring of the BCA output. Using thisapproach, we provide views on which European and US banks could be affected by theproposal.• In Europe, we believe that the ratings of smaller and/or periphery banks may benefit more,whilst the ratings of core banks are more likely to face negative action. Therefore, we thinkthat Moody's proposals are likely to result in ratings changes that lead to more alignment ofbank ratings across the different European jurisdictions.• We believe some French and UK banks could be among those more vulnerable to negativerating actions. Meanwhile, we think some Greek and Portuguese banks could benefit fromMoody's proposed methodology. We think T2 ratings that are on the HY/IG threshold wouldbe relatively more sensitive to changes, such as BAMIIM, CRDEM, BACRED, EUROB and ETEGAT2s (all Ba1 rated) and CMZB, DB and SOCGEN T2s (all Baa3 rated).• US banks account for about 11% of the ratings Moody's expects to be affected by theproposal. Within the region, we believe GSIBs and trust banks face the highest risk ofdowngrade, with ratings on JPM, BK and STT the most vulnerable, based on our analysis. Webelieve a number of category IV regional banks (ALLY, CFG, FITB, HBAN and MTB) could seeone notch of risk to their Moody's ratings.• Other US banks may see modest upside to their Moody's ratings for idiosyncratic reasons(FCNCA, FLG and KEY). The ratings on Category III super regionals seem to be the leastFICC ResearchCredit Research17 June 2