London, 22 May 2012 -- The following release represents Moody's Investors Service's summary credit
opinion on Lloyds TSB Bank Plc's affiliate and includes certain regulatory
disclosures regarding its ratings. This release does not constitute
any change in Moody's ratings or rating rationale for Lloyds TSB Bank
Plc's affiliate.
Moody's current rating on Lloyds TSB Bank Plc's affiliate is:
Cheltenham & Gloucester plc
BACKED Junior Subordinate (domestic currency) ratings of Baa3 (hyb) (under
review for possible downgrade)
RATING RATIONALE
Lloyds TSB's C- BFSR (mapping to baa1 equivalent long-term
debt rating and under review for downgrade) incorporates the group's leading
position in the UK retail financial services market. It also incorporates
the recapitalisation of the group since the acquisition of HBOS,
meaning the group's capital ratios are well positioned relative to peers.
Over the past 12 - 18 months there has also been an ongoing reduction
in non-core assets, strengthening of liquidity, completion
of the integration of HBOS, and indications that the recent high
level of impairments may have peaked.
The C- BFSR also incorporates the challenges facing the group.
These include the remaining wind-down of the large portfolio of
non-core assets and along with that a reduction in the bank's high
(albeit falling) utilisation of wholesale funding, the sale of businesses
due to EC requirements, and the reduction of a large sectoral exposure
to commercial real estate. Alongside these challenges is the risk
of a further downturn in the UK economy.
Lloyds' ratings are on review for downgrade as part of the review
of European banks announced on 15 February 2012. Moody's
has concerns about the impact on banks of the worsening European operating
environment, particularly for those banks that are large users of
wholesale funding.
Lloyds is making good progress in curbing its usage of wholesale funding,
through reducing non-core assets, limiting usage of government
funding schemes, increasing deposits, and maintaining its
liquidity reserves. Moody's also recognises that Lloyds has
a number of options to meet its funding requirements in 2012 even if the
term unsecured debt markets are closed, and without requiring central
bank funding (for example, secured debt issuance and private placements).
Nevertheless, Lloyds has large outstanding wholesale debt issuance
and Moody's considers that a structural dependence on wholesale
funding represents a more vulnerable credit profile in the current environment.
During the review period, Moody's will examine the potential
impact on Lloyds' credit profile of a deteriorating operating environment
in the UK, the bank's ability to generate stable profits in
this environment, and the future trajectory of wholesale funding
usage.
The A1 senior debt and deposit ratings (under review for downgrade) of
Lloyds benefit from three notches of uplift from the standalone C-/baa1
ratings. This reflects the systemic importance of the bank in the
UK and the high probability of support for senior debt and deposit holders.
This level of uplift for systemic support is in line with our approach
for large complex banks, such as Lloyds, which would be challenging
for the authorities to resolve.
The C-/baa1 standalone rating of Lloyds TSB is based on the consolidated
financials of Lloyds Banking Group and the financial ratios below are
based on the group's consolidated financials (with Moody's standard adjustments
for items such as pensions, hybrids and fair value of own debt).
A separate standalone rating of D+/baa3 is assigned to Bank of Scotland,
whereas the senior debt ratings of Bank of Scotland are A1 (under review
for downgrade) , reflecting the incorporation of parental support.
A2 ratings (under review for downgrade) are assigned to the senior debt
of Lloyds Banking Group and HBOS to reflect their structural subordination
as holding companies.
Rating Outlook
The C- BFSR is under review for downgrade as part of a wider review
of European banks, which reflects the multiple challenges we consider
these banks face, notably (1) a weakening macroeconomic environment;
(2) costly and constrained market funding; and (3) pressure on profits
The A1/ P-1 senior debt and deposit ratings of Lloyds TSB Bank
are under review for downgrade in line with the BFSR.
UK government guaranteed debt is rated Aaa (negative outlook), in
line with the negative outlook on the UK.
What Could Change the Rating - Up
There is currently no upward rating pressure, as reflected in the
review for downgrade. There could be upward pressure on the BFSR
in the future if the bank makes further significant progress in its reduction
of non-core assets and utilisation of wholesale funding and delivers
a consistently lower level of impairment charges and stable net profits.
What Could Change the Rating - Down
In addition to the factors which triggered the review for downgrade,
the standalone BFSR could come under downward rating pressure if the group
faces sharply higher impairment/ and or credit losses leading to a requirement
for additional capital support. The debt ratings could be downgraded
as a result of any future further reduction in systemic support assumptions
for large, complex UK banks.
The methodologies used in this rating were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: Global
Methodology published in March 2012. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Elisabeth Rudman
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Disclosures on Credit Rating of Lloyds TSB Bank Plc's affiliate
