MOODY'S REVIEWS FOR POSSIBLE UPGRADE LLOYDS BANK PLC'S Aa1 DEPOSIT RATING FOLLOWING PROPOSED ACQUISITION OF SCOTTISH WIDOWS
Moody's Investors Service placed on review for possible upgrade the Aa1 long-term deposit rating and Aa2 subordinated and junior subordinated debt ratings of Lloyds Bank plc, following the announcement of the proposed plan by Lloyds Bank to acquire Scottish Widows (rated Aa2 for financial strength), which is the UK's sixth largest life assurer. Lloyds Bank's short-term ratings are affirmed at Prime-1. The Aa1 long-term deposit rating of TSB Bank plc, the Aa3 subordinated debt rating of Lloyds TSB Group plc and the Aa2 and Aa3 senior and subordinated debt ratings of Cheltenham and Gloucester plc were also placed on review for possible upgrade. The existing financial strength rating of Lloyds Bank is A. In a related press release Moody's announced that it has placed on review for possible upgrade the Aa2 insurance financial strength rating of Scottish Widows.
The proposed acquisition involves an estimated cash payment by Lloyds TSB of œ 5.7 billion, and would give the bank a leading position in the UK long-term savings market, which is seen as having significant growth potential in coming years. The acquisition would be funded through the issuance by Lloyds Bank of preferred shares and subordinated debt.
Moody's said that the acquisition has potential to enhance Lloyds Bank's already strong UK retail banking franchise, providing a further stable source of revenue, while maintaining the group's relatively low risk profile. The rating agency added that it sees significant opportunity for revenue synergies, through the combined customer base and distribution channels available to Scottish Widows, while adding for the Lloyds Bank group a strong brand name and product range in the life assurance market. The rating agency said that the review would consider the extent of the potential cost and revenue benefits, while also examining the structure and cost of the acquisition and its impact on Lloyds Bank's financial fundamentals. Although the proposed acquisition would result in a reduction in Lloyds Bank's capital adequacy ratios, Moody's said that the bank's superior earning power would allow the bank to restore these to an appropriate level with little effort.
The following ratings were placed on review for possible upgrade:
Lloyds Bank Plc: long-term deposits at Aa1; subordinated and junior subordinated debt at Aa2
TSB Bank plc: long-term deposits at Aa1
Cheltenham and Gloucester plc: long-term deposits and long-term debt at Aa2; subordinated debt at Aa3
Lloyds TSB Group plc: subordinated debt at Aa3
Lloyds Bank plc is headquartered in London, England. At 31st December 1998 it had total assets of œ 144 billion (approximately USD 230 billion).
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