U.K. Banks Get Further Ratings Cloud, Moody's Gets Negative (LYG, RBS, BCS, HBC, IRE, STD, NBG)

If you didn’t think the ratings agencies were quite on par over the last, well for years now, there is another ratings agency action that needs to be discussed.  While it may sound opportunistic, this is actually something that has been in the works for close to six weeks.  Moody’s has placed more than a dozen U.K.-related banks on review for a possible credit ratings downgrade.   Some of the banks listed are Lloyds Banking Group plc (NYSE: LYG) and Royal Bank of Scotland Group plc (NYSE: RBS); Barclays plc (NYSE: BCS) was moved to Negative from Stable and HSBC Holdings plc (NYSE: HBC) was affirmed as Negative.  The other shadow was placed on the UK-units of Bank of Ireland (NYSE: IRE) and Banco Santander (NYSE: STD).

National Bank of Greece SA (NYSE: NBG) was not a part of the warning, but this needs to be watched as it is the proxy-ADR for any action in Greece by the credit ratings agencies as Greece is teetering.  Moody’s did note that a Greek debt default would have widespread ramifications elsewhere.  Shares are indicated higher this morning around $1.29, but the $1.27 close on Monday marked a 52-week low as the 52-week range is $1.27 to $3.23.  Also keep in mind that NBG’s earnings are due this week.

Moody’s did clarify that today’s action follows its announcement back on 7 April 2011 that it would “reassess the levels of systemic support incorporated in the senior debt ratings of UK financial institutions in order to align their ratings with the changes to systemic support that are evolving in this post-crisis environment.”  The rest of the summary can be found here.

Unfortunately, what is happening here is almost the same as a spiral downward, or at least a ‘negative-feedback-loop’ where one action causes another and the reaction causes another negative action and so on.  Stay tuned, and don’t be shocked when you hear about more credit rating downgrades by the ratings agencies in the days or weeks ahead.

JON C. OGG