Fitch downgrades RBS & Lloyds, puts Barclays on rating watch

Thursday, 13 October 2011 01:39

The credit ratings agency, Fitch, has downgraded two UK banks today.

The Royal Bank of Scotland (RBS) and Lloyds, both part-owned by the UK taxpayer have had their ‘Support Rating Floors’ lowered to ‘A’ from ‘AA-‘ and ‘A+’ respectively. Both banks have had their long term default ratings lowered from AA- to A.

Fitch has said that the decision was taken as it believes support from the government is less certain in the UK. It added that the banking sector is large to the overall size of the economy and said that the recommendation by the Vickers inquiry which is likely to be taken up by the government, to reduce the political support for UK’s banks was also a factor in their decision.

Fitch has kept the ‘1’ support rating for UK banks which indicates that support for the UK banks is likely to remain high the agency felt that a lower support rating floor is required because the potential for support for senior bank creditors is less certain than before.

A further UK bank, Barclays has been put on a rating watch, where it will be monitored to decide if its credit rating needs to be lowered.

Shares in UK banks fell in the late morning as the news unfolded. Barclays was particularly badly hit losing four per cent by midday.

In Fitch's rating framework, a bank's intrinsic creditworthiness is reflected in its Viability Rating, while the potential for extraordinary sovereign support is reflected in its Support Rating Floor. Its IDR is the higher of the two.

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