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May 30, 2008

Moody’s issues negative credit rating for UK banks

by Gill Montia

Story link: Moody’s issues negative credit rating for UK banks

Moody’s Investors’ Service has reported that its outlook for the direction of credit conditions in the UK banking system is negative.

The credit rating agency has based this view on the likelihood of an economic downturn, which combined with high levels of consumer debt in the UK, could lead to a rise in bad debts and lower profit margins for lenders.

In addition, Moody’s expect banks to continue to be affected by the credit crisis throughout 2008.

The firm says it is unable to assess the adequacy of writedowns already taken by some of the larger UK banks, or predict what losses may occur in the future.

The report is particularly bad news for banks in the process of raising capital via rights issues.

Royal Bank of Scotland (RBS), which needs to raise £12 billion to shore up its balance sheet, saw its shares plunge to an eight year low at one point yesterday, raising doubts as to whether existing investors will engage with the fundraising.

A lack of subscribers could leave Goldman Sachs, UBS and Merrill Lynch (the investment banks that have underwritten the issue) in a difficult situation.

Amid the gloom of the report, Moody’s also states that it still considers the overall financial position of the UK banking sector to be strong.


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