The list of banks on the watch-list released by Moody’s on Tuesday includes the Royal Bank of Scotland and Lloyds Banking Group, both of which were bailed out by the government at the height of the global credit squeeze in 2008 and retain significant state ownership.
Moody’s said the 14 lenders have levels of government support in their existing ratings that may be “too high for the evolving post-crisis environment.” “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 that banks that fail in the future should not expect capital injections from the public purse.” The review, which could lead to a rise in the banks’ borrowing costs, will take around three months.
The ratings agency will consider the levels of government support available, and any other mitigating factors that could rule out the need for a downgrade.
Government support accounts for an uplift of two to five notches for the big banks, and one to five for the smaller institutions.
“Moody’s expects to retain a high level of systemic support uplift in the senior debt ratings of the major UK banks, as the rating agency believes that the regulators do not currently have all the tools necessary to resolve such institutions without causing financial instability,” the agency said.
The British government spent around 500 billion pounds bailing out banks in late 2008 in an attempt to stop panic across the entire sector.
Since then, lawmakers and business groups have criticized the banks for failing to increase lending to businesses to boost the faltering domestic economy, while still awarding large bonuses as they rely on taxpayer support.
A cross-party parliamentary committee last month said that British banks benefit from an “implicit expectation” that taxpayers will rescue them.
Moody’s review covered 18 banks in all. Among other leading lenders, it said the debt rating for Barclays PLC, which did not take state funding, has been changed to negative from stable while HSBC Holding PLC’s was affirmed with a negative outlook.
The 14 banks on review for potential donwgrade are: Bank of Ireland UK PLC, Co-Operative Bank PLC, Coventry Building Society; Lloyds TSB Bank PLC, Nationwide Building Society, Newcastle Building Society, Norwich and amp; 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.
