Moody’s ratings agency lowered the rating of 12 U.K. financial institutions on Friday, saying it sees a decreased likelihood of government support for smaller institutions in particular but specifying the move does not reflect a deterioration in the financial strength of the banking system.
“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,” Moody’s said in a statement.
In addition, Moody's downgraded nine Portuguese banks on Friday, citing the increased risk linked to their holdings of government debt.
“It’s a little bit of a catch-up for Moody’s,” said Louise Cooper at BGC Partners, adding the downgrades were overdue.
Royal Bank of Scotland [RBS-LN 23.62 -0.74 (-3.04%) ] shares opened down by some 5 percent, also pressured by an FT report that Britain’s financial regulator is examining the bank’s portfolio of commercial property loans.
RBS said on Friday it remains one of Europe's strongest capitalized banks.
“A 5 percent move on RBS isn’t a huge move," Cooper said. "Markets are so massively volatile.”
Moody’s cut Lloyds TSB Bank [LLOY-LN 34.66 -1.205 (-3.36%) ] and Santander UK by one notch to A1 from Aa3 and the Co-Operative Bank by one notch to A3 from A2.
RBS and Nationwide Building Society were downgraded by two notches and seven smaller building societies were cut by one to five notches.
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