Fitch cuts Lloyds TSB and RBS credit ratings
Thursday 13 October 2011
Ratings agency Fitch cut the credit score of bailed-out lenders Lloyds TSB and Royal Bank of Scotland today, saying the Government had become less likely to give them further financial support.
Fitch's downgrade of Lloyds and RBS followed a similar move last week from rival Moody's, which also cited a reduced likelihood of additional state assistance for the banking sector.
"Support dynamics are changing in the UK," Fitch said.
"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."
Rating agencies had been widely expected to downgrade British banks amid signs the Government's commitment to supporting them has waned.
The Independent Commission on Banking's recommendation in September that banks ring-fence their retail units from riskier investment banking operations and hold more capital overall, has also been seen as negative for their credit rating.
Lloyds and RBS are 41 per cent and 83 per cent state-owned, respectively, after receiving billions of pounds aid during the 2008 financial crisis.
Fitch also placed rival bank Barclays on "rating watch negative," signalling it too might be downgraded, citing exposure to volatile, market-sensitive business activities.
RBS and Lloyds shares were down 3.8 per cent and 2.5 per cent respectively.
Fitch's decision - which led to further falls for 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.
But Fitch said Lloyds and RBS had shown steady improvement in their risk profiles and prospects over the past two years and they should achieve higher ratings in the medium term.
Lloyds, which is 40.2% owned by the taxpayer, said last week that it did not expect Moody's decision to hit funding costs, while RBS, which is 83% state-owned, said it was "disappointed" by the move.
Manthos Delis, analyst from Cass Business School, said: "There is always a possibility that a forecast becomes self-fulfilling and spreads to the economy.
"We must understand that a downgrade by one basis point should not imply grave danger for British banks, but it should be taken as a wake-up call for action."
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Rozanne Duncan: Ukip expels councillor for 'jaw-dropping' comments made in BBC TV interview
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
iJobs Money & Business
£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...