All four of the UK’s major banks today woke up to a generous portion of humble pie, after the influential ratings agency downgraded them across the board. Barclays had two notches taken off its rating (down to A3 from A1), HSBC was cut a notch and so was Lloyds. But the sorest loser was the Royal Bank of Scotland, which quickly trotted out a line to media this morning describing the decision as ‘backward looking’. But then, for a loss-making bank struggling to pay its way out of taxpayer ownership, that’s a bit rich.
The issue at stake is long-term funding: this is the category that all these banks fell down on. Despite the government and Bank of England’s best efforts – they have promised a new cheap lone facility – it’s going to be tougher for them to borrow commercially over long periods. Moody’s reckons this makes them wobbly enough that lenders should be cautious about getting into bed with the banks.
Elsewhere, Goldman Sachs, Morgan Stanley, UBS, Deutsche Bank and Credit Agricole are amongst those who have suffered a blow. Moody’s says it is worried about the effect of the worldwide financial predicament. With the eurozone cauldron still bubbling away, and the long-term effects of Greece’s new government uncertain, not to mention the ailing Spanish banks (which are crying for yet more bailout money), these financial monoliths are on shaky ground.
Moody’s downgrades have been pretty painful across the board, but notably, Lloyds has sustained the fewest injuries. It’s long-term funding was downgraded like everyone else’s, but its short-term funding was untouched, meaning its downgrade will have no effect on customers that borrow from it. For the other three big banks however, it means fewer personal loans and other short-term finance products for customers. And we thought the credit crunch had already done its worst…