Moody's places 14 UK banks on watch for downgrade

24th May 2011, Comments 0 comments

Moody's Investors Service on Tuesday placed 14 British banks including Lloyds TSB and Royal Bank of Scotland on review for possible downgrades, citing reduced chances of future government support.

The ratings agency said in a statement that it was reassessing the level of systemic support incorporated in the ratings of UK financial institutions in order to align them with changes to any extra state support for the sector.

Moody's added that it had also changed the outlook to negative on Barclays, while affirming a negative outlook for HSBC.

Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland all declined to comment on the news.

"The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the government," said Elisabeth Rudman, a Moody's Senior Credit Officer and lead analyst for a number of UK banks.

"It has been initiated in response to ongoing guidance from the UK authorities (the Bank of England, the Financial Services Authority and the Treasury) that banks that fail in the future should not expect capital injections from the public purse," she added.

Current levels of systemic support account for two to five notches of ratings uplift for the large UK banks and one to five notches of uplift for the small to medium-sized financial institutions, said Moody's.

However, the rating agency said it expected to retain a high level of systemic support uplift in the senior debt ratings of the major UK banks, since it believed that regulators did not currently have all the tools necessary to resolve such institutions without causing financial instability.

"We have been continuing to monitor the thinking of the regulators," Rudman told AFP.

Questioned about whether Britain's banks would receive less support in the event of another global financial crisis, she added:

"There's never anything in black and white. Support is less predictable and therefore we have to be more conservative in how we look at support.

"There is a chance that in some circumstances, some of these banks would get support.

"But there is a high probablity that in other circumstances some of these entitities would not get support."

The banks whose ratings are to be reviewed are: Bank of Ireland (UK) plc; Co-Operative Bank plc; Coventry Building Society; Lloyds TSB Bank plc; Nationwide Building Society; Newcastle Building Society; Norwich & Peterborough Building Society; Nottingham Building Society; Principality Building Society; Royal Bank of Scotland plc; Santander UK plc; Skipton Building Society; West Bromwich Building Society; and Yorkshire Building Society. The review process typically lasts three months.

Britain's banks were ravaged by the global financial crisis, resulting in the nationalisation of Northern Rock -- and multi-billion-pound rescues of RBS and Lloyds, which are now respectively 83-percent and 41-percent state-owned.

© 2011 AFP

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