Bloomberg News

Moody’s Downgrade of British Banks Is ‘Benign,’ Vickers Says

October 10, 2011

Oct. 10 (Bloomberg) -- John Vickers, chairman of the U.K.’s Independent Commission on Banking, said the downgrade of British banks by Moody’s Investors Service was an “entirely benign” development.

“In so far as that is a reflection of the step in progress of getting the taxpayer off the hook, I would see that as an entirely benign development,” Vickers told members of the House of Commons Treasury Committee in London today. “I would see it as a natural reflection of the taxpayer getting one step further off the hook.”

Moody’s last week cut the senior debt and deposit ratings of 12 British lenders including Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, saying the government would be less likely to provide support in the event of failure. The government-sponsored ICB’s report published last month is “credit-negative for bondholders longer-term as they indicate that new structures, such as ring-fencing, could be introduced to aid resolution and allow senior bondholders to share the burden of bank failure,” the service said.

The Bank of England, the Financial Services Authority and the Treasury have provided guidance that banks that fail in the future shouldn’t expect a taxpayer-funded bailout, Moody’s said.

Lloyds TSB Bank Plc, Santander UK Plc and Co-Operative Bank Plc had their ratings lowered one step by Moody’s, while RBS and Nationwide Building Society were cut two levels. Seven smaller building societies were cut from one to five levels, the rating company said in a statement today. Clydesdale Bank was confirmed at A2, with a negative outlook.

--Editors: Francis Harris

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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