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Downgrade fails to spook markets

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.

Mortgage rate rise risk after bank downgrades

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.

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.

– Richard Lloyd, executive director of consumer group Which?

UK banks 'able to withstand future financial difficulties'

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.

– British Bankers' Association statement


Lloyds reaction to Moody's credit downgrade

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.

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.

– lloyds statement

RBS reaction to Moody's downgrade

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:

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.

– RBS statement
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