Moody's downgrades credit ratings of 15 major banks

Ratings agency Moody’s has downgraded the credit ratings of several UK banks.

Barclays, HSBC and the Royal Bank of Scotland (RBS) are amongst the UK banks that have been downgraded. Lloyds Bank has also had its rating cut by Moody's in a separate decision.

This means that only HSBC amongst UK banks remains in the top tier of the banking league tables. Moody's says HSBC has stronger buffers or "shock absorbers" which means their exposure to the European sovereign debt crisis is more contained but it has downdraded its credit rating from Aa3 to Aa2.

Barclays is in the second tier and RBS is in the third tier, which, according to Moody's means: "The capital markets franchises of many of these firms have been affected by problems in risk management or have a history of high volatility, while their shock absorbers are in some cases thinner or less reliable than those of higher-rated peers."

None of the UK banks have been downgraded to a level that indicates junk status.

Moody's Global Banking Managing Director Greg Bauer said: All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.

"However, they also engage in other, often market leading business activities that are central to Moody's assessment of their credit profiles. These activities can provide important 'shock absorbers' that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges." 

Moody's acknowledged that governments around the world are committed to reducing support for creditors but that the frameworks were not yet in place to allow banks to fail.

The downgrades will increase the cost of borrowing for these banks, potentially costing them billions of pounds. These extra costs are likely to be passed onto UK customers through higher rates attached to mortgages and other loans.

French banks BNP Paribas and Societe Generale have also been downgraded as well as US banks Morgan Stanley and Goldman Sachs.

The other banks that have been downgraded are JP Morgan Chase, Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank and Royal Bank of Canada, Bank of America and Citigroup.

A statement from RBS said: "The group disagrees with Moody's ratings change, which the group feels is backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile."

The latest downgrading decisions will see other UK banks knocked down a further notch to the level of Santander UK, which received a downgrade by Moody’s in May.

However, Barclays Bank has been downgraded by two notches. Barclay’s share price fell towards the end of today’s trading on the FTSE 100. 

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