Ratings downgrades for 15 global banks including Barclays and HSBC failed to rattle the sector this morning.
The review by Moody's credit agency was downplayed by the UK's major institutions, with Royal Bank of Scotland calling it "backward looking".
But the downgrades highlighted the risks posed by the eurozone crisis and combined with yesterday's dismal economic data in the United States helped drag the FTSE 100 Index 45.9 points lower to 5519.6.
Among the banks, RBS was down by around 1%, as it also battled major technical problems affecting its NatWest subsidiary.
Barclays slipped 1p to 201.3p and HSBC dropped 1.5p to 557.75p.
Economist Linda Yueh told ITV1's Daybreak that "these downgrades were well expected" and people are unlikely to "find a huge impact in terms of the borrowing costs".
This announcement will also lead to speculation that it will cause a further rise in mortgage rates. For too long banks have taken advantage of the lack of competition on the high street to increase the interest rates charged on mortgages, loans and overdrafts, with over one million consumers seeing their yearly mortgage payments increase by over £300 million with the Standard Variable Rate rises earlier this year.
– Richard Lloyd, executive director of consumer group Which?
This is why we cautiously welcomed the Chancellor's recent "funding for lending" scheme. But we want to see strong safeguards in place to ensure that banks pass on this cheap credit to consumers.
– British Bankers' Association statement
UK banks have already made wide-reaching reforms to how they operate ahead of our international competitors. They are well capitalised so able to withstand future financial difficulties and have plans in place which will prevent taxpayers having to step in in the future. Their exposure to problems in the eurozone is also very limited. Moodys' assessment reflects overall concerns about the current ongoing issues in the eurozone rather than the organisations themselves.
– Treasury statement
All UK banks have significantly improved the strength and resilience of their balance sheets since the start of the financial crisis. More broadly, the Government's wider banking reforms - including separating retail and investment banking - will help ensure a stronger and more secure UK banking system.
Lloyds has reacted to the decision by Moody's to reduce its senior debt and deposit ratings by one notch to A2 from A1 and lower its standalone credit assessment to baa2 from baa1:
The drivers for the downgrade and weakened standalone credit profile are (i) the bank's sensitivity to the increasingly challenging operating environment in the UK and also in Europe; and (ii) Lloyds' high (albeit declining) use of wholesale funding, which implies that it would be vulnerable to changes in investor sentiment towards European banks.
– lloyds statement
Several factors mitigate these risks and have limited the extent and scope of today's actions. These include (i) Lloyds' leading UK-based customer franchises; (ii) strong capital ratios; and (iii) a track record of successfully meeting restructuring targets.
The Royal Bank of Scotland (RBS) has reacted to the decision by Moody's ratings agency to downgrade it by one notch on both the long term and short term ratings:
– RBS statement
This negative outlook reflects Moody’s’ expectation that government support for large UK banks may be lowered in the medium term. The downgrade reflects changes in the Moody’s rating methodology to assess global capital markets business models and its broader concerns about the additional pressures arising from a difficult Eurozone operating environment.
The downgrade of 15 banks announced by the ratings agency Moody's included a number of non-British banks. They are:
- Royal Bank of Canada - Aa3 from Aa1
- UBS - A2 from Aa3
- Credit Suisse - (P)A2 from (P)Aa2
- Bank of America - Baa2 from Baa1
- Citigroup - Baa2 from A3
- Goldman Sachs - A3 from A1
- JP Morgan and Chase - A2 from Aa3
- Morgan Stanley - Baa1 from A2
- BNP Paribas - A2 from Aa3
- Credit Agricole - A2 from Aa3
- Deutsche Bank - A2 from Aa3
- Societe Generale - A2 from A1
A spokesman for the British Bankers' Association (BBA) had this reaction to the decision by rating agency Moody's to downgrade British banks:
– Lesley McLeod, spokesman, BBA
UK banks have already made wide-reaching reforms to how they operate ahead of our international competitors. They are well capitalised so able to withstand future financial difficulties and have plans in place which will prevent taxpayers having to step in the future. Their exposure to problems in the Eurozone is also very limited. Moody's' assessment reflects overall concerns about the current ongoing issues in the Eurozone rather than the organisations themselves.