British Banks Face Credit Downgrade

Credit Rating Agency Moody’s has downgraded the credit rating of 12 major British Banks and Building Societies. Moody’s commented that the banks including Lloyds TSB, RBS, Santander, The Co-operative Bank and Nationwide are less likely to be bailed out by the taxpayer under the current climate. The move immediately sent the share prices of the banks tumbling and has rocked the FTSE [I am glad I sold my shares in Barclays earlier in the year! -Ed].

RBS is of particular concern as the bank is considered by analysts to be in need of government support. RBS underwent a period of dangerous growth prior to the credit crunch and was found to have accumulated a significant amount of toxic debt. Naturally it comes as no surprise that they have invested heavily in Greece.  RBS argue that Moody’s report is unfair and is based on past performance. They have already written off 50% of their exposure to Greece and have sufficient capital reserves in place. Let’s hope so for the sake of the taxpayer. 

RBS is 83% owned by the British taxpayer following a £45 billion bailout of the failed bank. Any requirement for further support will promote an angry reaction in the UK. The reduction in the credit rating of the UK banks will make it more expensive for them to borrow on the capital markets. This will put the banks in a weaker position and reduce their ability to lend to small businesses. There is a strong argument for RBS to be nationalised as this will enable the government to direct lending to the right channels and reduce the banks risk profile (as opposed to pumping money in and taking a back seat). It could be argued that the latest round of Quantitative Easing would be better spent nationalising RBS and directing the money to promote UK business.

The government continue to reassure customers that their savings are not at risk but Belsize point out that the threshold for individual savings is £85,000 per institution. Individuals with savings over this amount would be advised to spread their deposits across different banks in order to reduce exposure.