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Announcement:

Moody's maintains Royal Bank of Scotland's ratings on review for downgrade

Global Credit Research - 30 Sep 2013

London, 30 September 2013 -- Moody's Investors Service has today said that Royal Bank of Scotland plc's (RBS) D+ standalone bank financial strength rating (equivalent to a baa3 baseline credit assessment), its A3 long-term debt and deposit ratings as well as the bank's subordinated debt and junior capital instrument ratings, remain on review for downgrade.

As the rating agency announced on 5 July, the UK government is considering a range of options for removing higher risk and/or impaired assets from RBS and some of these options may entail losses for creditors. The heightened level of uncertainty is likely to remain at least until the publication of the UK government's conclusion from its assessment, after which Moody's expects to conclude its ratings review.

The standalone credit assessments and all other long-term ratings of National Westminster Bank (NatWest) plc and Royal Bank of Scotland NV also remain on review for downgrade because they are aligned with those of RBS, given the high degree of integration between RBS and these two entities.

The bank's Prime-2 short-term ratings, which are excluded from the ongoing review for downgrade, were affirmed in July.

RATINGS RATIONALE

--- MOODY'S ONGOING REVIEW WILL ASSESS RISKS FOR CREDITORS THAT MAY RESULT FROM THE UK GOVERNMENT'S DECISION REGARDING THE MERIT OF A BREAKUP OF RBS

The review for downgrade of RBS's ratings announced on 5 July, followed the announcement by the UK Chancellor of the Exchequer on 19 June of the commencement of a cost-benefit review to evaluate the merit of breaking up RBS in order to achieve the government's goals of (1) promoting economic growth; (2) maximising value for taxpayers; and (3) accelerating RBS's return to the private sector. This course of action is in line with the recommendations of the UK Parliamentary Commission on Banking Standards published on the same day, and indicates that the political debate about the strategy for RBS remains open, with a number of possible options under consideration.

Moody's considers that the risks of losses for creditors remain low. However, the rating agency believes that any actions that result from the UK government's decision may lead to further capital impairment, as the UK authorities have clearly indicated that they will not inject additional taxpayer money into RBS. As such, the UK government could consider options that result in a higher risk of loss to bondholders, particularly junior bondholders, than is currently reflected in RBS's senior and subordinated ratings.

For example, an accelerated sale of assets, together with the crystallisation of losses, could imply a faster erosion of capital than RBS can sustain. Alternatively, a full legal split of RBS, while being costly, complex and disruptive to management, would also have a negative impact on the group's profitability, could pose a strain on its liquidity, and might also result in a capital shortfall depending on the valuation of assets moved to the 'bad bank'. Any of these options could therefore have credit negative implications for bondholders. At the same time, Moody's recognises that upon completion, the separation could bring long-term benefits to RBS's financial position, with credit-positive implications for creditors of its post-transition going-concern operations. During the review period, Moody's will assess the risks for creditors that may result from such actions.

-- THE RATINGS REVIEW WILL BE CONCLUDED FOLLOWING THE UK GOVERNMENT'S ANNOUNCEMENT ON THE POSSIBLE BREAKUP OF RBS

Moody's expects to conclude its ratings review following the completion of the UK government study on the merit of a possible breakup of the bank, which will likely provide clarity on RBS's future. The government has indicated that an announcement in this respect will be made in autumn.

WHAT COULD MOVE THE RATINGS UP/DOWN

The review could lead to the lowering of RBS's baseline credit assessment and/or a downgrade of its debt ratings if (1) Moody's were to assess that any decision on the future of RBS, for example in relation to a breakup, were to increase the risk of losses for some or all of its creditors; (2) uncertainties surrounding RBS's future direction were to further escalate in the coming months; or (3) further indications were to emerge of the UK government's reduced willingness to support the bank's senior creditors.

Given the review for downgrade, there is currently no upward ratings momentum. However, the standalone credit assessment could be stabilised if (1) certainty regarding the bank's future were to materialise without posing additional risks to its existing creditors; or (2) as a result of the government decision, the bank were to improve its financial standing (for example, through the removal of low-quality assets from its balance sheet with minimal negative capital effects).

The principal methodology used in this rating/analysis was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this 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.

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 Moody's Ratings Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the time horizon in which a credit rating action may be after a review or outlook action took place.

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 the ratings disclosure page on www.moodys.com/disclosures for disclosures on significant Moody's shareholders and on certain relationships between Moody's, its shareholders and/or rated issuers.

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.

Andrea Usai
VP - Senior Credit Officer
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

Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 maintains Royal Bank of Scotland's ratings on review for downgrade
No Related Data.

 

© 2014 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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