Moody's puts 14 British banks on watch for downgrade

24th May 2011, Comments 0 comments

Moody's Investors Service said Tuesday it was reviewing 14 British banks including Lloyds TSB Bank and Royal Bank of Scotland for possible downgrade due to less government support in case of a bailout.

Moody's said the review would reassess the level of systemic support incorporated in the ratings of UK financial institutions in order to align their ratings with changes to government support for banks now that the global financial crisis has eased.

"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 expects to retain a high level of systemic support uplift in the senior debt ratings of the major UK banks, as it believes that regulators do not currently have all the tools necessary to resolve such institutions without causing financial instability.

The banks whose ratings are to be reviewed for possible downgrade 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; Yorkshire Building Society.

Moody's said it had changed the outlook on the Aa3 senior debt and deposit ratings of Barclays Bank plc to negative from stable and the Aa2 senior debt and deposit ratings of HSBC Holdings and HSBC Bank plc have been affirmed with a negative outlook.

© 2011 AFP

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