(The following statement was released by the rating agency)

Feb 14 - Fitch Ratings says that Barclays Bank plc's ('A'/Stable/'F1'/'a')

strategic review and its announced adequate adjusted Q412 results have no

immediate rating implications.

The bank's strategic review marks a clear intention to overhaul the bank's

corporate culture and reduce reputational and political risks, which have been

high of late. However, as expected, the review has not resulted in a

transformational change in the banking group's business mix. Barclays will

continue to operate as a global universal bank with material investment banking

operations that concentrate on the UK and US but will reduce or reposition less

profitable, capital intensive activities. Although Barclays plans to invest more

in other areas of the bank over the next three years, the group's investment

banking activities will remain large in absolute terms with GBP210bn-GBP230bn

Basel III risk-weighted assets (RWA) by 2015, which would account for about half

of the group's 2015 RWA.

At the same time, the bank has plans to continue to improve capitalisation and

to strengthen its traditional banking businesses and its wealth management

franchise, cutting back and repositioning its poorly performing retail

operations in continental Europe, for example. Fitch believes that combined and

over time, these could help to underpin better, more stable earnings and a lower

overall risk profile for the group as a whole.

Barclays reported only GBP0.1bn of pre-tax profit in Q412 adjusted for a GBP560m

fair-value loss of own debt, because of further substantial charges for PPI

redress (GBP600m) and redress for interest rate swap sales (GBP400m). Barclays'

FY12 return on tangible equity adjusted for fair-value losses on own debt stood

at about 5% but excluding the PPI redress and redress for interest rate swap

sales increases to 9.1%, which Fitch views as adequate, given the tough economic

environment.

Under its repositioning programme, Barclays aims to achieve a return on average

equity above its 11.5% cost of capital by 2015. As the bank expects only

moderate income growth rates in most businesses, improved performance is also

based on a GBP1.7bn cost reduction over the next three years. The targeted

headcount reductions for this year in the European (ex-UK) retail operations

(1,900 or a significant 24%) and the corporate and investment bank (1,800 or 5%)

reflect the bank's strategic repositioning.

Like other global trading and universal banks in Europe, Barclays is

concentrating on areas where it considers it has a competitive advantage.

Barclays benefits from good franchises in several fixed income (FICC) segments,

which have provided the bank with some earnings diversification. Barclays plans

to reduce and reposition less profitable FICC segments and has identified around

GBP70bn of inefficient Basel III RWA (roughly 27% of the division's end-2012

total) that it plans to reduce gradually. In equities, Barclays plans to

concentrate its activities in the UK and US, where it has strong market

positions, and to reposition itself in Europe and Asia.

The performance of Barclays' investment banking activities oscillates, but has

remained more stable than at many peers. Q412 pre-tax profit in the investment

bank declined 8% qoq to GBP858m, but was significantly up compared with GBP267

in Q411. Revenue in Q412 fell by only 2% qoq, showing a significantly less

marked seasonal deterioration than most peers, with management indicating a

strong credit and rates result. The FY12 divisional compensation to revenue

ratio of 39% (FY11 47%) and cost/income ratio of 62% (FY11 71%) both showed

substantial improvement driven by higher revenues. Fitch believes that the bank

should continue to benefit from its leading franchise in FICC, while its solid

position in US and UK equities should still provide some operating leverage to

any improvement in investor confidence although cost containment measures appear

to reflect the new management's cautious economic outlook

Barclays' strategic initiatives in its traditional banking businesses and in

Barclaycard and wealth and investment management are concentrated on benefiting

from the bank's strong position in the UK and in Barclaycard and to expand its

franchise in wealth and investment banking, where client assets amounted to

GBP186bn at end-2012. In continental Europe, where the bank's profitability has

suffered in the weak economic environment, Barclays plans to reduce the retail

network, infrastructure and cost base by 30% over the next three years. The

European retail unit was loss making in 2012 and the bank expects only a modest

return on equity by 2015. As these operations represent only a small portion of

the group's overall business (4% of end-2012 RWA), the drag on group earnings

should remain modest.

Barclays' 'look-through' Basel III common equity Tier 1 (CET1) ratio of 8.2% at

end-2012 is in line with Fitch's expectations and within the peer group range.

The bank targets a 'transitional' CET1 ratio of above 10.5%, which Fitch

considers sound but unambitious compared with leading peers, as the agency

estimates this ratio to translate into a 'look-through' CET1 that would be about

100bp lower. Barclays has indicated an 11.7% 'transitional' CET1 ratio by 2015

excluding RWA growth and earnings and Fitch expects that the group will continue

to strengthen capital ratios over coming years and that its capitalisation will

remain in line with leading peers'.

Under the bank's target capital structure, it expects to maintain a 10.5% CET1

ratio, supplemented by further issuance of additional Tier 1/contingent capital

instruments to total about 2% of RWA (the USD3bn of contingent capital issued in

2012 is equivalent to around 0.4% of target end-2015 RWA). On top of this,

further loss absorbing capital is expected to replace gradually called or

maturing existing Tier 1 and Tier 2 securities, to reach the 17% primary loss

absorbing capital (PLAC) target

There was a slight increase in Barclay's overall Basel 2.5 RWA in 2012 despite

business risk reduction because of a higher operational risk charge and a

GBP20bn methodology-related increase attributed to market RWA, sovereign

loss-given-default assumptions and commercial real estate slotting rules. This

appears in contrast to continental peers, where RWA have benefited from

model-approval reductions.

Fitch considers Barclays liquidity a strength. During Q412, Barclays' liquidity

pool reduced by 6% but remained large at GBP150bn at end-2012, comfortably

covering the bank's GBP89bn unsecured wholesale maturities within 12 months at

end-2012. At the same date, the bank's Basel III liquidity cover ratio (LCR)

under the revised January 2013 rules was a strong 126%. The bank indicated that

it will reduce the buffer within its GBP125bn-GBP150bn target range and to

change the composition of the buffer and reduce the proportion of cash and

deposits with central banks. The bank expects that this will reduce the carry

cost of the liquidity portfolio by about GBP300m. Fitch expects that at this

level, liquidity would remain sound, especially as unsecured wholesale funding

needs will decline under the bank's business plan, under which secured funding

will form an increasing proportion of wholesale funding.

(Caryn Trokie, New York Ratings Unit)

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(Caryn.Trokie@thomsonreuters.com; 646-223-6318; Reuters Messaging: rm://caryn.trokie.reuters.com@reuters.net)

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