Moody’s threatens UK bank rating downgrades

RATINGS agency Moody’s warned yesterday that the forthcoming withdrawal of government support to the UK banking sector could trigger a series of downgrades for City banks.

Moody’s said the increased likelihood of systemic support from the state or the Bank of England in the case of a further crash had helped buoy its ratings on UK banks over the past 18 months.

But it said those assumptions would be phased out of its assessments over the next one to three years, leading to potential downgrades.

“As the UK authorities implement their strategy to phase out the provision of extraordinary liquidity support to the UK banking sector and, in the long term, solvency support for banks, Moody’s expects to reduce the extraordinary systemic support assumptions factored into our debt and deposit ratings and return to our lower pre-crisis support assumptions,” said Moody’s senior credit officer Elisabeth Rudman, author of the report.

However, Rudman said individual institutions would be assessed on a case-by-case basis to determine the likelihood of them receiving further state support, meaning smaller City banks will be impacted more severely than larger ones such as part state-owned Lloyds Banking Group and RBS.