Fitch cuts ratings on British lenders RBS, Lloyds

13th October 2011, Comments 0 comments

Fitch announced Thursday that it has lowered its ratings for British state-rescued lenders Royal Bank of Scotland and Lloyds Banking Group, citing the reduced likelihood of further government support.

Fitch said in a statement that it has cut the long-term issuer default ratings for both lenders to 'A' from 'AA-'.

RBS and LBG were bailed out at the height of the global financial crisis and are now 83-percent and 40.2-percent state-owned, respectively.

Fitch has also placed Barclays, which has never taken direct government support and is rated 'AA-', on ratings watch negative. That means that it might be downgraded in the future.

The Fitch news came one week after rival group Moody's downgraded its ratings for a dozen British lenders, including RBS and LBG, and blamed the significantly reduced chances of further support.

"The revision ... reflects Fitch's view that support dynamics are changing in the UK," Fitch added on Thursday.

"The banking system is not only large relative to the UK economy, but there is also more advanced political will to reduce the implicit support for the country's banks."

Fitch added that the move "indicates that the potential for the provision of extraordinary support for senior bank creditors is relatively less certain than before."

In reaction, their share prices fell heavily in afternoon deals on the London stock market on Thursday.

Royal Bank of Scotland (RBS) shares dived 2.2 percent to 25.3 pence, Lloyds stock sank 3.8 percent to 34.9 pence, and Barclays tumbled 4.01 percent down at 179.5 pence.

At the same time, the benchmark FTSE 100 index slid 1.03 percent to stand at 5,385.86 points.

Prior to the news, Europe's banking sector was already sliding over heightened fears over its exposure to the eurozone debt crisis and the potential impact of more recapitalisation.

In reaction to the Fitch announcement, an RBS spokesman told AFP: "The removal of implicit government support for the UK banking sector is a necessary and important step forward as the sector returns to stand-alone strength.

"While RBS is among the banks downgraded today, we are pleased that Fitch has commented on the steady improvement in our stand-alone risk profile."

He added: "RBS has already completed its wholesale funding requirements for 2011 and continues to make progress in strengthening key balance sheet measures in the second half."

Separately, Lloyds noted that its standalone rating had not been altered by Fitch.

"As part of a rating review across a number of financial institutions, Fitch has reduced Lloyds' long term debt rating by two notches and short-term rating by one notch," an LBG spokesperson said.

"It is important to note that the stand-alone rating remains unchanged and the outlook given is stable."

© 2011 AFP

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