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Moody’s warns of future downgrades of UK banks

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Moody’s warns of future downgrades of UK banks

09.03.2010
Global credit-rating agency Moody’s has said that as the UK Government begins to wind down the level of extraordinary liquidity support it provided to the country’s banks during the financial crisis, this may lead it to downgrade a number of the banks’ bonds.

According to Moody’s, the support provided by the UK Government to some of the country’s banks provided stability for those institutions’ senior debt and deposit ratings, even as their standalone creditworthiness ratings were downgraded by the agency.

However, Moody’s now says that with the removal of this Government support some UK banks could see their ratings lowered.

“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 Elisabeth Rudman, a Moody's Vice-President—Senior Credit Officer, in a note yesterday.

What this all means is that even as global governments attempt to wean their banks off extraordinary supports brought in during the financial crisis, those same banks may as a direct consequence be faced with increasing borrowing costs because of the removal of state support.

 

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