Capital Injections Stabilize UK Bank Ratings at Current Levels
The “extraordinary support” provided by the UK government stands a good chance of succeeding in rebuilding confidence in the UK banking system and stabilizing UK banks at their current rating levels, Standard & Poor’s says.
S&P on Oct 13 affirmed its ‘AA-/A-1+’counterparty credit ratings on Barclays NYSE: BCS) and Lloyds TSB Group (NYSE: LYG) and its ‘A+/A-1′ counterparty credit ratings on HBOS (NYSE:HBOS) and The Royal Bank of Scotland Group PLC (NYSE: RBS). The outlook on RBSG was revised to stable from negative. The counterparty credit ratings on Barclays and Lloyds TSB remain on CreditWatch with negative implications, where they were placed on Sept. 17, 2008 and Sept. 18, 2008, respectively. The long-term counterparty credit rating on HBOS also remains on CreditWatch, where it was placed on Sept. 18, 2008, but the implications were revised to positive from developing.
This massive aggregate capital increase and the related funding and liquidity measures are intended to rebuild confidence in the UK banking system, ensure the continued provision of credit to the real economy, support banks while they continue to de-lever, and reinforce their balance sheets in preparation for the full impact of the sharp downturn in the UK economy and property market, S&P says in a Research Update.
“The steps taken by the government are comprehensive and, in our view, stand a good chance of achieving these goals…. it materially increases the capital cushion available to absorb future credit impairments and write-downs. The government’s actions provide material support to ratings that could otherwise have been vulnerable to a crisis of confidence and an associated credit cliff.”
Rather than upgrade the ratings, we consider that the extraordinary support provided by the government stabilizes the banks at their current rating levels.
Furthermore, although we expect the government’s support to remain in place for a sustained period, it does not intend to be a permanent shareholder.
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