Banks' credit ratings downgraded
Friday 07 October 2011
Confidence in the UK's financial sector was dealt a blow today after an agency slashed the credit ratings of some of Britain's biggest banks to reflect reduced Government support.
Lloyds Banking Group, Santander UK, Royal Bank of Scotland, Co-operative Bank, Nationwide and seven smaller building societies had their debt downgraded by Moody's Investor Service.
The widely-expected move - which triggered a fall in banking shares on the London Stock Exchange - reflects moves by the Government to shift risk away from taxpayers and on to creditors but could see the cost of borrowing for the affected financial institutions increase.
The Chancellor said he was sure the banks were well funded, while Lloyds and RBS defended their record on improving their finances.
Moody's stressed its review did not reflect a deterioration in the financial strength of the banking system or the Government.
In fact, the agency upped the ratings on the basis of stand-alone financial strength for five institutions - Co-op, Nationwide, Santander and Yorkshire and Principality building societies.
Elisabeth Rudman, senior vice president of the financial institutions group at Moody's, said: "Moody's has lowered the amount of support it incorporates into the institutions' ratings to reflect the overall weakening support environment."
Moody's said the downgrade came after Government support was removed for the seven small institutions, while help was reduced for larger "more systemically important" institutions including RBS.
The smaller building societies are Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire, Moody's said.
While the Government is "likely to continue to provide some level of support" to bigger banks, Moody's said it is "more likely now to allow smaller institutions to fail" if they hit troubled waters.
Lloyds, Santander and Co-op Bank had their ratings downgraded one notch, RBS and Nationwide a two-notch revision, while the seven building societies saw ratings cut by between one and five places.
Chancellor George Osborne said the move reflected the British Government's shift away from guaranteeing all the UK's largest banks.
He added: "I'm confident that British banks are well capitalised, they are liquid, they are not experiencing the kinds of problems that some of the banks in the eurozone are experiencing at the moment."
Taxpayer-backed Lloyds, which is 40.2% state-owned, stressed that its stand-alone rating had not changed.
A Lloyds spokesman said: "It is important to note that both the stand-alone rating and short-term ratings remain unchanged. We believe this change will have minimal impact on our funding costs."
RBS, which saw its shares drop more than 3%, also came under pressure after a report in the Financial Times suggested it could require a further bailout from the Government.
The bank said it was "disappointed" that Moody's had not acknowledged its progress in strengthening its finances since 2008.
It is understood RBS, which is 83% owned by the taxpayer, could be liable for another bailout if it fails a rerun of European banking stress tests.
RBS, which received the biggest bailout of the 2008 financial crisis, could see its protective cash buffers fall below regulators' requirements after exposure to eurozone debt is taken into account.
RBS has reduced its exposure to debt-laden nations including Greece and Italy, but it is feared that once so-called "haircuts" - effectively write-offs - are given, the bank will fail to keep up.
- 1 Florida man sentenced to two-and-a-half years for having sex on the beach in front of a child
- 2 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 3 Nick Kyrgios calls former Olympian Dawn Fraser a 'blatant racist' after she tells Wimbledon star to 'go back where their parents came from'
- 4 World learns of app that shows you who unfriended you on Facebook, app promptly crashes
- 5 Chris Moyles reportedly set to make radio comeback with new breakfast show on XFM
Florida man sentenced to two-and-a-half years for having sex on the beach in front of a child
Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
Man who was struck and killed by lightning in Brecon Beacons 'was carrying a selfie stick'
Greece debt crisis as it happened: EU chiefs at loggerheads hours before Alexis Tsipras’s last ditch deal proposals
Bakery sends 'horrific' version of Frozen-themed birthday cake to unsuspecting customer
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
Greece debt crisis: Angela Merkel and Francois Hollande issue Athens with 24-hour ultimatum to avoid crashing out of the euro
Greece crisis: Referendum exposes a gaping hole at the heart of the European Union – its lack of genuine legitimacy
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...