Bank shares slide as Moody's looks to downgrade 14 UK lenders

by Michelle McGagh, Sarah Miloudi on May 24, 2011 at 08:33

Shares in some of Britain's best-known banks and building societies have tumbled after ratings agency Moody's announced plans to downgrade 14 lenders, including Lloyds, Royal Bank of Scotland and Santander.

Lloyds' shares fell 0.35% to 50.72p at 8.20am, making it one of the biggest fallers in the FTSE 100. RBS shed 0.42% and dropped to 40.75p, while Santander stood flat.

In the report issued this morning, Moody's said the UK’s four biggest banks are among the lenders on review - a process that should take three months to complete and examine the in depth the level of systemic support in 18 financial institutions, more than a dozen of which are banks. Other lenders that could be cut by Moody's include:

* Bank of Ireland UK

* Co-Operative Bank

* Coventry Building Society

* Nationwide Building Society

* Newcastle Building Society

* Norwich & Peterborough Building Society

* Nottingham Building Society

* Skipton Building Society

* West Bromwich Building Society

* Yorkshire Building Society

* Principality Building Society

Moody’s is also set to maintain a ‘negative’ rating on HSBC.

Elisabeth Rudman, Moody's senior credit officer and lead analyst for a number of banks, said: 'The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the government.

'It has been initiated in response to ongoing guidance from the UK authorities the Bank of England, the Financial Services Authority and the Treasury that banks that fail in the future should not expect capital injections from he public purse.'

The ratings agency said in April it could cut its ratings for Britain's smaller banks as it assessed how they would fare without the cushion of a possible government bail out during difficult times.

Fitch, another ratings agency, also said last month banks face more challenging macroeconomic conditions over the year ahead. But it added that banks' balance sheets have become stronger since the financial crisis.

How scared should banks be?

Moody's announcement of its review of UK lenders may not have a far-reaching impact on the industry, however, even if the agency is to examine key areas including how difficult it would be for regulators to deal with a another failure and the acceptability of further taxpayers' funds being used to support the banking system.

'What was quite interesting was the lack of reaction in equities and the immediate reaction in sterling. The corporate bond take on this is that Moody's is changing [it's view on] the value of the implicit guarantee, rather than changing its view on banks. There should not be a dramatic reaction on banks,' she said.

Notes …

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