Moody’s Downgrades British Banks

Moody’s cut the senior debt and deposit ratings of twelve financial institutions in the U.K. based on the conclusion that the government would be unlikely to provide support in the event of failure.

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LLoyds Banking Group (NYSE:LYG-A), Santander UK, and Co-Operate Bank Plc all had their ratings lowered one notch, while Royal Bank of Scotland (NYSE:RBS) and Nationwide Building Society were lowered two steps. Seven smaller building societies were cut between one and five levels. Moody’s re-affirmed its A2 rating on Clydesdale Bank, with a negative outlook.

“Moody’s has pulled the trigger a little early in its assessment that governments will materially reduce the level of extraordinary support on offer to their banking systems with the escalation of the sovereign and banking crisis almost certainly about to result in a broad government-backed recapitalization of the continent’s banks,” said Michael Symonds, a credit analyst at Daiwa Capital Markets Europe Ltd.

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The Bank of England, the Financial Services Authority, and the Treasury have all “provided guidance” that banks shouldn’t expect a taxpayer-funded bailout in the event of failure, said Moody’s. “Moody’s reassessment assumes a decrease in the probability that the U.K. government would provide future support to financial institutions if needed,” said Moody’s in a statement released today.