Moody’s Threatens These British Lenders with Downgrades

The age of the bailout in America has eroded much of consumer faith in the financial service sector. With government riding to the rescue and bailing out the big banks, to most something just didn’t seem right. Now Moody’s Investor’s Services (NYSE:MCO) is set to shake that funny feeling by prodding government aided lenders across the pond in Britain to get off the state payroll.

According to a memo released this morning, Moody’s plan’s to re-evaluate its ratings on fourteen (!) major UK banks that have received extensive “systemic support” (government aid), for possible downgrade! Among the fourteen banks on the hot seat are major players The Bank of Ireland (NYSE:IRE), Lloyd’s TSB Bank (NYSE:LYG), and The Royal Bank of Scotland (NYSE:RBS).

Moody’s expects its review process to take up to three months, and will focus on two major factors in evaluations, 1) “The extent of support incorporated into each institution,” (how much government assistance the bank received and still has to pay off) and 2) “Any upward pressure on firms’ standalone ratings that could offset or mitigate some of the downward pressure on the senior debt ratings during the review period.”

The Investor’s Service provider claims that it has made the decisions to enter this review process in order to make sure lenders had incentive to preserve their ability to remain self-sufficient, saying “banks that fail in the future should not expect capital injections from the public purse.”

Other big UK lenders Barclay’s Bank (NYSE:BCS) and HSBC Bank (NYSE:HBC) were mentioned in the report, but dodged the bullet in avoiding investigation for downgrade by Moody’s panel.

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