Moody's cut is 'backward looking', claims RBS

published 22 June 2012

Credit ratings agency Moody's has downgraded 15 major banks and financial instiutions, including the major lenders on Britain's High Street.

Royal Bank of Scotland, Barclays, Lloyds and HSBC all got the downgrade treatment as the agency completed its review of the global banking sector. Barclays' rating was downgraded by two notches while the ratings of the others were ratcheted down by one level.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities," explained Greg Bauer, Moody's global banking managing director.

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The move will make it more expensive for the banks to tap the corporate bond markets so will not have been welcomed.

Royal Bank of Scotland (RBS) said it disagreed with the ratings change, saying the change is "backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile."

Nonetheless, the group believes the impacts of the downgrade are manageable. The amount of collateral that may have to be posted following this one notch downgrade by Moody's is estimated to be £9bn as of May 31st.

RBS's long term rating was downgraded from A2 to A3, with a stable outlook. The short term rating was downgraded to P-2 from P-1 with a negative outlook, reflecting Moody's belief that the UK government will provide less support to big banks in the medium term.

"The group continues to maintain a solid liquidity and funding position. RBS has completed its planned wholesale funding requirements for 2012," the RBS statement said.

Britain's other part-nationalised lender, Lloyds Banking Group, was a tad more phlegmatic in its response to Moody'ss action.

The short term P-1 rating for Lloyds TSB Bank remains unchanged, but the longer-term senior debt and deposit ratings have been lowered by one notch to A2 from A1, and the standalone credit assessment has also been lowered by one notch to baa2 from baa1. The outlook is stable on the standalone credit assessment, and negative on the A2 senior debt and deposit ratings reflecting Moody's medium-term view of lower systemic support for UK banks.

"I am pleased that Moody's have recognised the substantial momentum we have made in de-risking our balance sheet and delivering on our strategy," said Lloyds' Chief Executive Officer, Antnio Horta-Osrio. "I expect this momentum to be sustained," he added.