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Santander credit rating downgrade: what it means

Santander credit rating downgrade: what it means

Category: Banking

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
On Thursday 17 May, credit rating agency Moody's downgraded the ratings of 16 Spanish banks, including Banco Santander – the parent company of Santander in the UK.

In a shock move, the UK subsidiary also had its rating cut too.

Why did the Spanish banks get downgraded?

Moody's downgraded the Spanish banks as it felt that Spain's government may not be able to give the necessary help to bail them out, if the need arose. As Santander's parent Banco Santander is a Spanish bank, it received a downgrade as well.

Santander in the UK also received a downgrade over concerns that it may be exposed to the same turbulence that its parent is experiencing. However, Santander UK still has a higher credit rating than Banco Santander, reflecting its lower risk status.

What you should know about Santander UK

  • Santander is a separate entity from Banco Santander. That means that money held by Santander UK is entirely separate to that held in Banco Santander, the banks only share the branding, and the owner.
  • While you might be concerned that Santander UK might be required to bolster Banco Santander in Spain, this is very unlikely. For a start Santander UK is authorised and regulated by the Financial Services Authority, who would keep a close eye on any such Anglo-Spanish bailout. The FSA has the power to stop such a bailout happening if it feels that it would bring risk to the UK banking system.
  • Banco Santander is not in trouble. The downgrade is more of a comment on the Spanish government's ability to bail out banks, than it is on the solvency of Banco Santander. It is the Eurozone's biggest bank and although another Spanish bank has had to be part-nationalised, there is no suggestion that this will happen to Banco Santander.
  • Even in the event that things did go awry for Santander in the UK, the first £85,000 per person deposited with the bank is protected by the Financial Services Compensation Scheme.

What will be the effect of this downgrading for Santander's customers?

A lower credit rating means that it's slightly more expensive for the bank to borrow. So this could be passed on to mortgage, loan and credit card customers down the line.

What can you do?

There's no reason to withdraw money from Santander. If you have under £85,000 saved with the bank (which includes its subsidiary brands of Alliance & Leicester, Bradford & Bingley and Cahoot) you've nothing to worry about.

If you have more than £85,000 saved (or £170,000 for jointly held accounts) you could consider moving surplus money to another bank. However, this would be a prudent thing to do anyway for deposits exceeding compensation scheme limits in any UK bank or building society, not just Santander.

What next?

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