MOODY'S ASSIGNS FINANCIAL STRENGTH RATINGS TO UK BANKS AND BUILDING SOCIETIES
London, 08-07-95 -- Moody's Investors Service assigned Bank Financial Strength Ratings (BFSRs) to the thirteen UK banks and eleven UK building societies whose long-term and short-term deposits are already rated. BFSRs use a letter scale ranging from A ("exceptional") to E ("very weak" -- see full definitions below), to differentiate them from Moody's traditional Aaa-through-C credit ratings.
Bank Financial Strength Ratings assigned are the following (the list of the existing bank deposit ratings is also attached):
Deposit Ratings BFSRs Long-Term Short-Term
Abbey National Aa2 P1 B+
Alliance & Leicester Building Society A1 P1 B
Bank of Scotland Aa3 P1 B
Barclays Bank plc Aa2 P1 B+
Birmingham Midshires Building Society A3 P2 C
Bradford & Bingley Building Society A1 P1 B
Bristol & West Building Society Baa1 P2 D+
Britannia Building Society A2 P1 C+
Cheltenham & Gloucester Aa3 P1 B
Citibank International plc Aa3 P1 C
Halifax Building Society Aa1 P1 A
Kleinwort Benson Limited A3* P2* C*
Lloyds Bank plc Aa2 P1 B+
Midland Bank plc Aa3 P1 B
Morgan Grenfell & Co Limited Aa1 P1 C+
National & Provincial Building Society A1* P1* B*
National Westminster Bank plc Aa2 P1 B+
Nationwide Building Society A1 P1 B
Northern Rock Building Society A2 P1 C+
Standard Chartered Bank A2 P1 C
Royal Bank of Scotland plc Aa3 P1 B
TSB Bank plc Aa3 P1 B
Woolwich Building Society A1 P1 B
Yorkshire Building Society A2 P1 C+
* On review for possible upgrade
Moody's said that BFSRs are intended to provide investors with a measure of a bank's or a building society's intrinsic safety and soundness on an entity-specific basis. Unlike the traditional credit ratings, BFSRs are not intended to measure the true risk of credit loss -- i.e., the risk that a bank will miss payments on its deposits or other fixed-income obligations. Instead, BFSRs provide a useful comparative indicator of what an institution's creditworthiness would be on a stand-alone basis, and as such they should be viewed by investors solely as one component of the existing bank deposit ratings. In this context, Moody's emphasized that BFSRs do not in any way negate or diminish the meaning and the value of the existing bank deposit ratings.
In assigning BFSRs, Moody's is answering the frequent requests of bank investors -- particularly interbank and counterparty credit departments -- for an assessment of what a given bank's credit profile would be without reference to support mechanisms, ownership, or membership in a banking group. In many instances, banks with identical deposit ratings have different BFSRs. This occurs frequently in two circumstances: (1) when low sovereign rating ceilings push downwards the deposit ratings of financially stronger banks, and (2) when the deposit ratings of banks with a less strong financial position are based to various degrees on implicit or explicit external support -- coming either from their parent companies or having an official nature.
The publication of these ratings for the UK banks and building societies is in line with Moody's already announced plan to assign BFSRs to the more than 600 banks worldwide for which it currently maintains bank deposit ratings. This plan is now in the process of being implemented, and BFSRs are being assigned on a country-by-country basis in each of the 40 countries with rated financial institutions -- including 16 European nations. Like Moody's credit ratings, Bank Financial Strength Ratings are globally comparable across countries and currencies, and they will be consistent in their meanings over time.
BFSRs will be publicly available through Moody's information centers, publications, and press announcements. Rating changes will also be announced publicly.
Definitions: Moody's Bank Financial Strength RatingsMoody's Bank Financial Strength Ratings represent Moody's opinion of a bank's intrinsic safety and soundness and, as such, exclude certain external credit risks and credit support elements that are captured by Moody's debt and deposit ratings. Unlike Moody's traditional debt ratings, Bank Financial Strength Ratings do not address the probability of timely payment. Instead, Bank Financial Strength Ratings can be understood as a measure of the likelihood that a bank will require assistance from third parties such as its owners, its industry group, or official institutions. Bank Financial Strength Ratings do not take into account the probability that the bank will receive such external support, nor do they address risks arising from sovereign actions that may interfere with a bank's ability to honor its domestic or foreign currency obligations.
Factors considered in the assignment of Bank Financial Strength Ratings include bank-specific elements such as financial fundamentals, franchise value, and business and asset diversification. Although Bank Financial Strength Ratings exclude the external factors specified above, they do take into account other risk factors in the bank's operating environment, including the strength and prospective performance of the economy, as well as the structure and relative fragility of the financial system, and the quality of banking regulation and supervision.
The definitions for Moody's Bank Financial Strength Ratings (which have been revised slightly since they were first announced in November 1994) are as follows:
Banks rated A possess exceptional intrinsic financial strength. Typically, they will be major institutions with highly valuable and defensible business franchises, strong financial fundamentals, and a very attractive and stable operating environment.
Banks rated B possess strong intrinsic financial strength. Typically, they will be important institutions with valuable and defensible business franchises, good financial fundamentals, and an attractive and stable operating environment.
Banks rated C possess good intrinsic financial strength. Typically, they will be institutions with valuable and defensible business franchises. These banks will demonstrate either acceptable financial fundamentals within a stable operating environment, or better than average financial fundamentals within an unstable operating environment.
Banks rated D possess adequate financial strength, but may be limited by one or more of the following factors: a vulnerable or developing business franchise; weak financial fundamentals; or an unstable operating environment.
Banks rated E possess very weak intrinsic financial strength, requiring periodic outside support or suggesting an eventual need for outside assistance. Such institutions may be limited by one or more of the following factors: a business franchise of questionable value; financial fundamentals that are seriously deficient in one or more respects; or a highly unstable operating environment.
Where appropriate, a "+" may be appended to ratings below the "A" category to distinguish those banks that fall into intermediate categories.
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