London, 29 January 2019 -- Moody's Investors Service today affirmed the A3 senior unsecured
debt rating of Lloyds Banking Group plc (LBG), with a stable outlook.
The rating agency also affirmed Lloyd Bank plc's (Lloyds Bank) Aa3
long-term deposit and senior unsecured debt ratings with a stable
outlook and its a3 BCA. The ratings of all subordinated debt issued
by LBG and Lloyds Bank, including the high-trigger Additional
Tier 1 (AT1) instruments, were also affirmed.
Furthermore, Moody's upgraded the long-term Counterparty
Risk Assessment (CR assessment) and Counterparty Risk Rating (CRR) of
Lloyds Bank to Aa2(cr) and Aa2 respectively, from Aa3(cr) and Aa3.
Finally, Moody's assigned a notional baseline credit assessment
(BCA) of a3 to LBG.
A full list of affected ratings can be found at the bottom of this press
release.
RATINGS RATIONALE
-- LBG: ASSIGNMENT OF NOTIONAL BCA AND AFFIRMATION
OF ALL RATINGS
Moody's said it assigned a notional BCA of a3 to LBG, taking
into account the group's low asset risk, stable core earnings,
and strong current levels of capital, which are, however,
more susceptible to deterioration in a stress than that of most of its
peers due to exposures to unsecured consumer loans and buy-to-let
mortgages, as well as the rating agency's expectation that
problem loan impairments will increase. LBG's insurance subsidiary
Scottish Widows Limited (Scottish Widows, IFRS A2 stable) provides
earnings diversification to the group.
The affirmation of the senior unsecured debt rating of LBG reflects the
group's stable standalone creditworthiness, as well as Moody's
unchanged view of moderate loss-given-failure, due
to the volume and subordination of debt issued by LBG itself and externally
by its directly owned banking subsidiaries; this results in a A3
senior unsecured debt rating for LBG, in line with the group's
a3 notional BCA.
The affirmation of the rating on the dated subordinated debt issued by
LBG reflects its high loss-given-failure, according
to Moody's, leading to a Baa1 rating, one notch below
the group's a3 notional BCA. Particular coupon features continue
to drive additional negative notching for preference share instruments.
-- LLOYDS BANK: AFFIRMATION OF BCA, DEPOSIT,
SENIOR UNSECURED, AND SUBORDINATED DEBT RATINGS
Moody's said it affirmed Lloyds Bank's a3 BCA, based
on the bank's low asset risk and stable core earnings. Asset
risk reduced following the transfer of capital markets activities,
non-EEA business and lending to financial institutions to Lloyds
Bank Corporate Markets plc (LBCM, long-term deposit and issuer
ratings A1 stable, BCA baa3, adjusted BCA baa1), offsetting
the impact on its financial profile of the rating agency's expectation
of lower profitability following the transfer of Scottish Widows to LBG,
and weak leverage.
As a result of the implementation of ring-fencing, the structure
of the Lloyds Banking Group became more complex. LBG (1) created
a new entity, LBCM, directly owned by LBG, which now
manages the group's wholesale banking and trading operations that
were previously under Lloyds Bank; (2) transferred the off-shore
subsidiary Lloyds Bank International Limited (LBIL, long-term
deposit and issuer ratings Baa1 stable, BCA baa2, adjusted
BCA baa1) to LBCM from Lloyds Bank, and (3) transferred the ownership
of Scottish Widows to LBG from Lloyds Bank.
Previously, when Lloyds Bank was the only material subsidiary of
LBG, Moody's assumed that all unsecured liabilities issued
by LBG, including those not downstreamed to Lloyds Bank, would
absorb the losses of the operating company. This is in line with
the assumptions that the rating agency makes for other large UK banking
groups that were subject to ring-fencing.
Under the new group structure post ring-fencing, excess loss-absorbing
capital issued by the holding company can now be used to support Lloyds
Bank, but also LBCM, LBIL, and Scottish Widows.
Accordingly, and given the group's expectations for intra-group
funding and capital distribution, Moody's believes that the
unsecured liabilities issued by the holding company will not be wholly
downstreamed to Lloyds Bank and can therefore no longer be assumed to
fully absorb the losses at failure of this operating company. As
a result, the loss-given-failure for junior depositors
and senior bondholders of Lloyds Bank will be very low, rather than
extremely low previously. This leads to a two-notch uplift
for Lloyds Bank's long-term deposit and senior unsecured
debt ratings, from three previously, relative to the bank's
adjusted BCA of a3.
The benefit of government support now offsets higher loss-given-failure,
leading the agency to affirm the deposit and senior unsecured debt ratings.
-- LLOYDS BANK: UPGRADE OF LONG-TERM CR ASSESSMENT
AND CRR
Moody's upgraded the long-term Counterparty Risk Assessment
(CR assessment) and Counterparty Risk Rating (CRR) of Lloyds Bank to Aa2(cr)
and Aa2 respectively, from Aa3(cr) and Aa3. The long-term
CR assessment and CRR, for which the rating agency continues to
assume a moderate probability of government support, now benefit
from a one-notch uplift from government support, consistently
with Lloyds Bank's long-term deposit and senior unsecured
debt rating.
OUTLOOK
The outlook on Lloyds Bank and LBG is stable. The outlook reflects
Moody's view that the bank and the group will be resilient to an
expected moderate deterioration in the UK operating environment.
FACTORS THAT COULD LEAD TO AN UPGRADE
The BCAs of LBG and Lloyds Bank could be upgraded following a material
reduction in conduct risk, higher capital buffers, and an
improvement in profitability. An upgrade of the BCA would lead
to an upgrade of all long-term ratings of Lloyds Bank and LBG.
Furthermore, LBG's senior unsecured rating could be upgraded following
a material increase in the stock of subordinated debt issued by the holding
company or externally by the bank.
FACTORS THAT COULD LEAD TO A DOWNGRADE
The BCAs of LBG and Lloyds Bank could be downgraded following a more-acute-than-expected
deterioration in the UK's operating environment or a material decline
in the bank's capital metrics. Moody's base case assumption
remains that a withdrawal agreement between the UK and the European Union
(EU) will be approved with a transition period. A downgrade of
the BCA would result in the downgrade of all long-term ratings.
Furthermore, the senior debt ratings of Lloyds Bank and LBG could
be downgraded following a reduction in their externally issued unsecured
debt.
LIST OF AFFECTED RATING
Issuer: Lloyds Banking Group plc
..Assignments:
....Baseline Credit Assessment, assigned
a3
....Adjusted Baseline Credit Assessment,
assigned a3
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed A3 Stable
....Senior Unsecured Shelf, affirmed
(P)A3
....Senior Unsecured Medium-Term Note
Program, affirmed (P)A3
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Subordinate Shelf, affirmed (P)Baa1
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Backed Junior Subordinated Regular Bond/Debenture,
affirmed Baa2(hyb)
....Preference Shelf, affirmed (P)Baa3
....Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
....Other Short Term, affirmed (P)P-2
..Outlook Action:
....Outlook remains Stable
Issuer: Lloyds Bank plc
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to Aa2 from Aa3
....Long-term Counterparty Risk Assessment,
upgraded to Aa2(cr) from Aa3(cr)
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa3 Stable
....Short-term Bank Deposits,
affirmed P-1
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa3 Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa3 Stable
....Backed Senior Unsecured Shelf, affirmed
(P)Aa3
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa3
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Aa3
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Backed Subordinate Regular Bond/Debenture,
affirmed Baa1
....Backed Subordinate Shelf, affirmed
(P)Baa1
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Backed Subordinate Medium-Term
Note Program, affirmed (P)Baa1
....Junior Subordinated Regular Bond/Debenture,
affirmed Baa2(hyb)
....Preferred Stock, affirmed Baa3(hyb)
....Commercial Paper, affirmed P-1
....Other Short Term, affirmed (P)P-1
..Outlook Action:
....Outlook remains Stable
Issuer: Cheltenham & Gloucester plc
..Affirmation:
....Junior Subordinated Regular Bond/Debenture,
affirmed Baa2(hyb)
..No Outlook assigned
Issuer: HBOS plc
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to Aa2 from Aa3
....Long-term Counterparty Risk Assessment,
upgraded to Aa2(cr) from Aa3(cr)
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa3 Stable
....Short-term Issuer Rating,
affirmed P-1
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Junior Subordinated Regular Bond/Debenture,
affirmed Baa2(hyb)
..Outlook Action:
....Outlook remains Stable
Issuer: Bank of Scotland plc
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to Aa2 from Aa3
....Long-term Counterparty Risk Assessment,
upgraded to Aa2(cr) from Aa3(cr)
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa3 Stable
....Short-term Bank Deposits,
affirmed P-1
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa3 Stable
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa3 Stable
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Junior Subordinated Regular Bond/Debenture,
affirmed Baa2(hyb)
....Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
..Outlook Action:
....Outlook remains Stable
Issuer: Bank of Scotland Capital Funding L.P.
..Affirmation:
....Backed Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
..No Outlook assigned
Issuer: HBOS Treasury Services Plc
..Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa3 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: HBOS Capital Funding No. 1 L.P.
..Affirmation:
....Backed Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
..No Outlook assigned
Issuer: HBOS Capital Funding No. 2 L.P.
..Affirmation:
....Backed Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
..No Outlook assigned
Issuer: Halifax Limited
..Affirmations:
....Backed Subordinate Regular Bond/Debenture,
affirmed Baa1
....Backed Junior Subordinated Regular Bond/Debenture,
affirmed Baa3(hyb)
..No Outlook assigned
Issuer: HBOS Group Sterling Finance L.P.
..Affirmation:
....Backed Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
..No Outlook assigned
Issuer: Leeds Permanent Building Society
..Affirmation:
....Backed Junior Subordinated Regular Bond/Debenture,
affirmed Baa3(hyb)
..No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Edoardo Calandro
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
