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Investors offered reassurance over bank downgrades

Investors offered reassurance over bank downgrades

Category: Banking

Updated: 13/10/2011
First Published: 13/10/2011

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Investors have been told not to be concerned by the recent spate of bank downgrades, as Fitch became the latest agency to cut the ratings of UK banks.

Lloyds Banking Group and Royal Bank of Scotland (RBS) have both had their ratings slashed by Fitch after it decided the Government was now less likely to provide them with further financial support should they encounter any more problems.

The so-called 'long-term issuer default ratings' of the two part-nationalised banking giants have been downgraded two notches from AA- to A.

Last week Moody's downgraded the ratings of 12 UK banks, including Lloyds and RBS, for similar reasons.

Despite sanctioning the move, Fitch said both banks had shown steady improvement in their risk profiles and prospects over the past two years and could see their ratings rise in the medium to long term, as long as the eurozone crisis did not spiral out of control.

At the same time, Fitch placed Barclays on negative watch, suggesting a downgrade in its rating could be on the cards.

The agency said it was keeping a careful eye on the bank because its business model was 'particularly sensitive to market sentiment and confidence'.

Despite the latest round of downgrades, the Association of Financial Mutuals has told investors they should not be overly worried.

The association said the decision by Moody's to downgrade the credit rating of a number of banks and building societies had been inevitable after the Government made it clear that banks should not be seen simply as 'too big to fail'.

It also added that the downgrades reflected a catching up by the agency rather than a change in the creditworthiness of the institutions.

"Investors should not be worried and as long as they avoid holding more than £85,000 in any bank or building society, their deposits are safe," it concluded.

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