Barclays posts lowest CET1 ratio in stress test

BARCLAYS PLC saw its key measure of financial health sink to the lowest level among 48 banks in a European stress test, which gauged how well lenders could withstand heavy credit losses and other Brexit-related fallout.

Barclays’s fully loaded common equity Tier 1 (CET1) ratio, a measure of its highest-quality capital, shrank to 6.37% in a so-called adverse scenario. Fellow London lender Lloyds Banking Group Plc didn’t fare much better in the test, with that gauge of financial health falling to 6.8%. That compared with a comparable ratio of 14.85% for Dutch bank ABN Amro Group NV.

The outcome of the stress test, which has no pass or fail grade, matters because it helps supervisors determine if banks need to add capital and what level of shareholder dividends and staff bonuses they can pay out. Over the test’s three-year horizon, 25 banks would have faced regulatory restrictions and decreased payouts by €52 billion ($59 billion).

Barclays downplayed the importance of the results, saying the European Banking Authority (EBA) test didn’t take into account business strategies and management actions since the end of 2017 or future initiatives. It also said its capital requirements will mainly be informed by the Bank of England’s own stress test results on Dec. 5.

The EBA stress test envisages a scenario with shocks such as years of negative economic growth and a rise in government bond yields, amid Brexit-related uncertainty. In Italy, bank shares have plunged recently as the populist government challenges European Union rules to ramp up deficit spending next year. German lenders have been buffeted by a particularly harsh scenario that assumes a steeper drop in gross domestic product than the rest of the EU.

Gary Greenwood, an analyst at Shore Capital, said Barclays has a “green light” to buy back preferred shares and is talking about share buybacks, so there doesn’t appear to be any concern around capitalization. Barclays CEO Jes Staley said last month that his firm was ready to take on US rivals after recording “the best performance of any bank to report thus far” for the third quarter.