Moody's downgrades 12 UK financial institutions

The downgrades have been caused by Moody's reassessment of the support environment in the UK which has resulted in the removal of systemic support for 7 smaller institutions and the reduction of systemic support by one to three notches for 5 larger, more systemically important financial institutions.

According to Moody's, announcements made, as well as actions already taken by UK authorities have significantly reduced the predictability of support over the medium to long-term.

Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift.

However, it is more likely now to allow smaller institutions to fail if they become financially troubled. The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government.

In addition, the rating agency has assigned a negative outlook to the senior debt and deposit ratings of the banks that still incorporate two or more notches of systemic support, to reflect the likelihood of a further reduction in the availability of systemic support over the medium to long term.

The rating actions include:

One-notch downgrade:

- Lloyds TSB Bank plc (to A1 from Aa3)

- Santander UK plc (to A1 from Aa3)

- Co-Operative Bank plc (to A3 from A2)

Two-notch downgrade:

- RBS plc (to A2 from Aa3)

- Nationwide Building Society (to A2 from Aa3)

Seven smaller building societies were downgraded one to five notches. The ratings of Clydesdale Bank were confirmed at A2 with a negative outlook.

As outlined in the May press release, Moody's have reviewed the standalone ratings of all entities prior to concluding on the debt ratings.

Paul Richardson, of Concept Financial Planning, said:
 
"Consumer confidence is already weak but what Moody's has done could make things even worse.
 
"The Chancellor has done his best to reassure savers, saying he is confident that British banks are well capitalised. But many savers will immediately feel more exposed on the back of this news.
 
"That Moody's insists that these downgrades do not reflect a deterioration in the strength of the banking system is irrelevant. This is all about perception and the perception will only be bad.
 
"People can take comfort from the government-backed Financial Services Compensation Scheme, which protects £85,000 of a person's savings per financial institution.
 
"Right now the ratings agencies are riding roughshod over the financial services sector.
 
"Moody's will have its reasons, of course, but many will see this mass-downgrade as an overreaction - and one that could do the banks and the country serious damage if it causes panic."