Moody's sees more pain for British banks

BRITAIN&rsquo;S banking crisis is far from over, credit ratings agency Moody&rsquo;s said yesterday, with adverse macroeconomic conditions likely to weigh on their profitability for months to come.<br /><br />In its new UK Banking System Outlook, Moody&rsquo;s signalled continuing pain for beleaguered British lenders, due to the likelihood that unemployment will rise, forcing struggling borrowers to default on loans.<br /><br />The company said it expected a further &pound;130bn of losses on the loan books and securities portfolios of UK lenders, to add to the billions of pounds of provisions already taken by banks amid the crisis.<br /><br />Moody&rsquo;s lead analyst for the UK banking system Elisabeth Rudman said she expected further strife for banks due to the expected poor performance of key asset classes, lower earnings and lack of available capital.<br /><br />And she warned that if the economy performed worse than Moody&rsquo;s worst-case scenario of a 40 per cent peak-to-trough house price fall, a 60 per cent slump in commercial property and three to four per cent GDP contraction in 2009, then the agency may be forced to further downgrade the Bank Financial Strength Rating of UK lenders.<br /><br />However, she said that senior debt and deposit ratings were likely to remain unchanged due to the impact of large-scale government capital injections.<br /><br />Bankers themselves are also sceptical about the industry&rsquo;s prospects, according to figures from global business advisory firm FTI Consulting.<br /><br />The firm&rsquo;s survey of more than 150 institutional investors revealed that 64 per cent of respondents globally do not believe the financial crisis is over.<br /><br />The mood of pessimism is even worse in the UK, where 73 per cent of respondents do not yet see light at the end of the tunnel.