Moody's announces bank rating actions for the United Kingdom resulting from implementation of JDA and BFSR methodologies
New York, April 20, 2007 -- Moody's Investors Service today published the rating results for banks
in the United Kingdom as part of the application of its refined joint
default analysis (JDA) and updated bank financial strength rating (BFSR)
methodologies.
BFSRs evaluate the stand-alone or intrinsic financial strength
of banks without reference to external support factors. BFSRs are
the starting point of Moody's bank credit analysis, and are
an important determinant of Moody's bank deposit and debt ratings.
Moody's then uses its JDA methodology to incorporate the potential
for external support into a bank's local currency deposit rating.
The potential for external support can reduce the riskiness of a bank's
deposit and debt obligations; however, such support is often
uncertain. Moody's uses conservative support assumptions
and a limited number of support levels to ensure that sufficient weight
is given to a bank's intrinsic financial strength in its bank deposit
and debt ratings.
Moody's uses deposit ratings to determine bank debt ratings based
on its notching guidelines for bank securities. Ratings for foreign
currency obligations are determined after considering Moody's country
ceilings for foreign currency ratings.
The methodologies are being implemented country by country, with
results being announced on a weekly basis. Results for those banks
with a parent bank located in another country where the methodologies
have not yet been implemented will be concluded at the same time as the
parent.
The most significant debt rating upgrades based on systemic support were
for some of the larger UK banks.
RBS and NatWest were upgraded to Aaa from Aa1. Lloyds TSB Aaa was
maintained. All these banks also saw moderate downgrades in their
BFSR due to implementation of our new BFSR methodology.
Barclays Aa1 was placed on review for possible upgrade with a view to
concluding once there is clarity in regards to its on going discussions
on potential merger talks with ABN Amro.
The three Aaa rated banks in the UK reflect our assessment of the high
probability of systemic support given their importance to the UK economy
and its payment system.
Also notable were the upgrades of the ratings of Bank of Scotland and
Halifax, the operating entities of HBOS Group, to Aa1 from
Aa2 , as well as the upgrade of HSBC Bank plc to Aa1 from Aa2.
We maintained the rating of HBOS Group at Aa2 as well as that of HSBC
Holding plc. We note that HSBC Holding continues to have a positive
outlook on its ratings.
With regard to HBOS Group we have thus established a one notch difference
between the holding company and the banks. In doing this we are
recognising the structural subordination that exists and is brought more
firmly into focus by the support imputed to deposit and debt holders at
the bank level. We note that the two banking licenses (Bank of
Scotland and Halifax) are to be consolidated later this year and the ratings
of the two banks takes account of this. A similar one notch rating
difference between the holding company and the lead banks is maintained
at the RBS Group, leading to a one notch upgrade of the holding
company ratings at that group.
This press release lists the names of issuers in United Kingdom whose
ratings have been changed, affirmed, or put on review.
Deposit ratings are listed for those banks whose deposit ratings have
changed. To view all ratings changes and other documents explaining
Moody's bank rating methodologies, please go to www.moodys.com/JDABanks.
Below is a list of banks whose ratings have been upgraded:
Bank of Scotland : Deposit ratings to Aa1/P-1 from Aa2/P-1
CIBC World Markets plc: Deposit ratings to Aa2/P-1 from Aa3/P-1
Cheshire Building Society : Deposit ratings to A2/P-1 from
A3/P-1
Close Brothers Ltd: Deposit ratings to A2/P-1 from A3/P-2
Co-Operative Bank Plc: Deposit ratings to A2/P-1 from
A3/P-1
Derbyshire Building Society: Deposit ratings to A2/P-1 from
A3/P-1
Dunfermline Building Society: Deposit ratings to A2/P-1 from
A3/P-1
Halifax plc : Deposit ratings to Aa1/P-1 from Aa2/P-1
HSBC Bank plc: Deposit ratings to Aa1/P-1 from Aa2/P-1
Investec Bank (UK) Ltd : Deposit ratings to A3/P-2 from Baa1/P-2
National Westminster Bank PLC : Deposit ratings to Aaa/P-1
from Aa1/P-1
Nationwide Building Society : Deposit ratings to Aa2/P-1
from Aa3/P-1
Newcastle Building Society : Deposit ratings to A2/P-1 from
A3/P-1
Northern Rock plc : Deposit ratings to Aa3/P-1 from A1/P-1
Norwich & Peterborough Building Society: Deposit ratings to
A2/P-1 from A3/P-1
Royal Bank of Scotland plc : Deposit ratings to Aaa/P-1 from
Aa1/P-1
Scarborough Building Society : Deposit rating to A3/P-2 from
Baa1/P-2
Skipton Building Society: Deposit ratings to A2/P-1 from
A3/P-1
Standard Life Bank Limited : Deposit ratings to A2/P-1 from
A3/P-2
West Bromwich Building Society Deposit ratings to A2/P-1 from A3/P-1
Below is a list of banks whose ratings have been downgraded:
Bristol & West plc : Deposit ratings to A1/P-1 from Aa3/P-1
Below is a list of banks whose ratings have been affirmed:
Abbey National plc : Deposit ratings affirmed at Aa3/P-1
Alliance & Leicester plc : Deposit ratings affirmed at Aa3/P-1
Bradford & Bingley plc : Deposit ratings affirmed at A1/P-1
Britannia Building Society : Deposit ratings affirmed at A2/P-1
Chelsea Building Society : Deposit ratings affirmed at A2/P-1
Cheltenham & Gloucester plc : Deposit ratings affirmed at Aaa/P-1
Coventry Building Society : Deposit ratings affirmed at A2/P-1
Leeds Building Society Deposit ratings affirmed at A2/P-1
Lloyds TSB Bank : Deposit ratings affirmed at Aaa/P-1
Principality Building Society : Deposit affirmed at A2/P-1
Ulster Bank Limited : Deposit ratings affirmed at Aa2/P-1
Yorkshire Building Society : Deposit ratings affirmed at A2/P-1
Below is a list of banks whose ratings are on review:
Barclays Bank PLC : Deposit ratings at Aa1 on review for possible
upgrade.
Portman Building Society : Deposit ratings at A2/P-1 on review
for possible upgrade.
Egg Banking Plc : Deposit ratings at A3/P-2 on review for
possible upgrade.
ABOUT MOODY'S BANK RATINGS
Bank Financial Strength Rating
Moody's Bank Financial Strength Ratings (BFSRs) 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 addressed
by Moody's Bank Deposit Ratings. 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.
Global Local Currency Deposit Rating
A deposit rating, as an opinion of relative credit risk, incorporates
the Bank Financial Strength Rating as well as Moody's opinion of any external
support. Specifically, Moody's Bank Deposit Ratings are opinions
of a bank's ability to repay punctually its deposit obligations.
As such, Moody's Global Local Currency Bank Deposit Ratings are
intended to incorporate those aspects of credit risk relevant to the prospective
payment performance of rated banks with respect to local currency deposit
obligations, and includes: intrinsic financial strength and
both implicit and explicit external support elements. Moody's Bank
Deposit Ratings do not take into account the benefit of deposit insurance
schemes which make payments to depositors, but they do recognize
the potential support from schemes that may provide assistance to banks
directly.
Foreign Currency Deposit Rating
Moody's ratings on foreign currency bank obligations derive from the bank's
local currency rating for the same class of obligation. The implementation
of JDA for banks can lead to a high local currency ratings for certain
banks, which could also produce high foreign currency ratings.
Nevertheless, it should be reminded that foreign currency deposit
ratings are in all cases constrained by the country ceiling for foreign
currency bank deposits. This may result in the assignment of a
different, and typically lower, rating for the foreign currency
deposits relative to the bank's rating for local currency obligations.
Foreign Currency Debt Rating
Foreign currency debt ratings are derived from the bank's local currency
debt rating for the same class of obligation. In a similar way
to foreign currency deposit ratings, foreign currency debt obligations
may also be constrained by the country ceiling for foreign currency bonds
and notes, however, in some cases the ratings on foreign currency
debt obligations may be allowed to pierce the foreign currency ceiling.
A particular mix of rating factors are taken into consideration in order
to assess whether a foreign currency bond rating pierces the country ceiling.
They include the issuer's global local currency rating, the foreign
currency government bond rating, the country ceiling for bonds and
the debt's eligibility to pierce that ceiling.
National Scale Rating
National scale ratings are intended primarily for use by domestic investors
and are not comparable to Moody's globally applicable ratings; rather
they address relative credit risk within a given country. An Aaa
rating on Moody's National Scale indicates an issuer or issue with the
strongest creditworthiness and the lowest likelihood of credit loss relative
to other domestic issuers. National Scale Ratings, therefore,
rank domestic issuers relative to each other and not relative to absolute
default risks. National ratings isolate systemic risks; they
do not address loss expectation associated with systemic events that could
affect all issuers, even those that receive the highest ratings
on the National Scale.
London
Adel Satel
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Edward Vincent
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
