Banks at risk, agency warns warns on

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The Independent Online
Depositors with dozens of well-known banks could risk losing their money in the event of a Barings-style crisis, according to IBCA credit rating agency. It says the institutions in question, including such names as Hambros, Robert Fleming, Kleinwort Benson and the Alliance & Leicester, are not important enough to be guaranteed a rescue by the Bank of England.

The banks and building societies are on a list produced by rating agency IBCA of institutions that could be allowed to fail in the event of potential collapse. The list is used by many local authorities to screen where they should deposit their funds.

One firm of investment advisers, Integer, has already advised 150 local authority clients that investments and deposits should not be made with banks and building societies to which IBCA gave a ``legal'' rating of four or worse in January.

Along with its basic credit ratings, IBCA rates institutions on a scale of one to five, based on its judgement of whether or not they would be rescued by state authorities or their shareholders if they collapsed.

In January it correctly ranked Barings, despite its blue-chip credit rating (A1), as an institution which faced the possibility of not being saved. Others which had had a poor legal rating included Johnson Matthey, which was saved by the Bank of England out of its own funds, and Banco Ambrosiano, which was not rescued.

Banks with a rating of between one and three would be supported, says IBCA, because they are too important to the banking system to fail, or because their shareholders would come to the rescue. A rating of four means there might be support but it cannot be taken for granted.

Robin Monro-Davis, managing director of IBCA, said: ``It is not a merit rating or judgement about management, but an opinion about the bank's position in the financial system and the attitude of the authorities.''

He said the merchant banks would all have scored higher ratings 10 years ago, but the Bank of England had swung firmly towards a free-market approach to bank rescues. The Bank's formal position is that it does not guarantee any bank.

IBCA gives a four rating to banks such as Hambros, Robert Fleming, Kleinwort Benson, Schroder Wagg, Singer & Friedlander and Standard Chartered - names which, like Barings prior to its collapse, would not have been thought of by the public as risky places to invest.

Most of Britain's building societies get a four rating because the Treasury might bail out one that failed, but this cannot be assumed. Only the two biggest, Halifax and Nationwide, are given a rating (two) that implies they could be certain of rescue.

Peter Morley of Integer said: "Two hundred banks internationally get a three rating or better. So why invest with banks like Barings when you have a substantial number of banks you can invest safely with?"


Bank Credit Indiv. Legal

rating rating rating

Abbey National A1+ A/B 2

Bank of Scotland A1+ B 2

Barclays A1+ B 1

Baring Brothers A1 B/C 4

Charterhouse A1 B 3

Close Bothers A2 B 4

The Cooperative Bank A2 B/C 4

Robert Fleming & Co A1 A/B 4

Hambros Bank Ltd. A1 B 4

Kleinwort Benson Ltd A1 B/C 4

Lazard Brothers & Co A1 B 3

Lloyds Bank A1+ A/B 2

Midland Bank A1+ B 2

Morgan Grenfell & Co Ltd A1+ B 3

National Westminster Bank A1+ B 1

NM Rothschild & Sons A1 B 4

The Royal Bank of Scotland A1+ B 2

Schroder Wagg & Co A1 B 4

Singer & Friedlander A2 B/C 4

Standard Chartered A1 B 4

TSB Bank A1+ B 2

SG Warburg & Co A1+ A/B 3

An A1 credit rating means the institution is regarded as having the highest capacity for timely repayment. A2 implies a good capacity. The individual rating assesses the institution's ability to support itself financially - A is strong, C adequate.

Source: IBCA