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Announcement:

Moody's: UK Ring-Fencing Rules To Impact Banks' Credit Fundamentals

26 Sep 2016

London, 26 September 2016 -- New ring-fencing rules in the United Kingdom (UK), effective from 2019, will impact the affected banks' credit fundamentals, says Moody's Investors Service in a report published today.

The new rules will require large UK banking groups with UK-based retail and small business deposits of more than GBP25 billion to segregate these operations (or required activities) into a ring-fenced bank (RFB). Some other activities are permissible within the RFB, while others are prohibited. Residual activities not included within the RFB will have to be transferred to a separate entity, the non-ring-fenced bank (NRFB).

Based on the criteria published by the Bank of England, Moody's expects that the rules will initially affect HSBC, Barclays, The Royal Bank of Scotland (RBS), Lloyds and Santander UK, but will not apply to Nationwide, which is a building society.

Moody's report, entitled "UK Banks - UK Ring-Fencing Will Impact Affected Banks' Credit Fundamentals," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. Please note that this report does not constitute a rating action.

"We expect the standalone credit profiles of the ring-fenced banks to be in line with or stronger than those of the existing bank," says Alessandro Roccati, a Senior Vice President at Moody's. "Conversely, we expect the standalone credit profiles of the non-ring-fenced banks to be in line with or weaker than those of the existing bank".

The rating agency notes that the future baseline credit assessments (BCAs) of the RFBs and NRFBs, which convey the standalone credit profiles of each entity, will reflect each banking group's decisions regarding the split of their assets/liabilities and business mix. Final ratings will also be a function of Moody's advanced Loss Given Failure analysis and Moody's assessment of Government support, in line with Moody's banking methodology.

The rating agency expects that the standalone credit profiles of the RFBs will reflect their less complex but also less diversified business models, as well as their higher quality earnings from retail loans and their more stable, primarily deposit-based funding profiles.

Conversely, the rating agency expects the standalone credit profiles of the NRFBs will be driven by their more volatile and riskier activities, their higher degree of interconnectedness with other capital market participants, as well as their greater reliance on more confidence-sensitive wholesale funding.

Based on Moody's understanding of the apportionment of assets and liabilities provided by the relevant companies, the rating agency believes that in the case of Lloyds and Santander UK, their existing principal UK banking entities are likely to become the RFB. For HSBC, Barclays, and RBS, on the other hand, their principal existing UK banking entities are likely to become a NRFB.

Moody's says that it expects to assess the credit implications for RFBs and NRFBs around the time that the legal entities are set up and assets and liabilities transferred, and that this will occur in the first half of 2018, prior to the 1 January 2019 implementation date.

Subscribers can access the report at: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1024107

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Alessandro Roccati
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

Laurie Mayers
Associate Managing Director
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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