In an ongoing review which began in May, Moody’s Investors Service has finally reached a verdict on whether or not to downgrade certain leading UK banks and lenders. Some of the largest lenders have been cut by as many as a double downgrade, which Moody’s claims is based solely on the lack of backing by UK government.

Furthermore, Moody’s has left open the possiblility for further cuts which include three of Britain’s largest lending institutions and they said that these options for downgrades would be help open based on government’s willingness and ability to support those institutions if the need became evident.

Some of the banks and lenders under review which have been downgraded include:

  • Nationwide Building Society (down 2 notches)
  • RBS PLC (down 2 notches)
  • Lloyds TSB Bank PLC (down one notch)
  • Santander UK PLC (down one notch)
  • Co-Operative Bank PLC  (down one notch)

And, then there were 7 smaller lenders and building societies that were brought down anywhere from one to five notches. The reason for these downgrades, as stated above, is in the fact that Moody does not see the government’s commitment for supporting these lenders. In Moody’s words, the government’s support is “less certain.”

Moody’s feels that larger institutions such as Lloyds and RBS ‘may’ get some amount of support from government if they were beginning to fail but the smaller institutions would probably see no support forthcoming, thus the downgrades.

Furthermore, Moody’s made a blanket statement saying that there are likely to be more downgrades coming over time amidst government’s lack of support and the inability of European banks to cope with their own sovereign debt.

Although there are some who feel that Moody’s acted a bit preemptively, Moody’s believes their ratings are consistent with advice and information provided by the BoE. Even so, RBS and Lloyds feel that their investment in the UK government is sufficient enough that these recent downgrades will have little to no effect on their economic futures.

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