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Lloyds And Rbs Could See Profits Slashed As Moody's Plans Downgrades


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#1 interestrateripoff

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Posted 01 May 2012 - 07:25 AM

http://www.telegraph...downgrades.html

Lloyds and RBS are set to be among the banks hardest hit by the planned dowgrades by Moody's, the most important of the three established ratings agencies.

Profits at Lloyds are forecast to fall 16pc next year, while RBS's earnings will drop 8pc, as the banks face higher funding costs, as a result of their downgrades by Moody's, according to Citigroup.

Both banks have put in place major turnaround programmes aimed at returning them to profitability. But Citigroup warned these plans could be disrupted by the downgrades, which could also upset plans to privatise the lenders.

Lloyds, which is 41pc owned by the state, is currently rated A1 by Moody's but is expected to be downgraded by two notches to A3. Citigroup said the lender would as a result have to put up a further 24bn of assets against its secured borrowings, to compensate for the increase in its perceived riskiness.


Lloyds shareholders must love the genius that is Gordon.

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#2 koala_bear

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Posted 01 May 2012 - 08:42 AM

http://www.telegraph...downgrades.html



Lloyds shareholders must love the genius that is Gordon.

Mystic Merv to the rescue?


I presume that this assumes the same level of lending by both continuing, surely as the cost of borrowing goes up, borrowing will go down a bit to compensate as well as IR going up?

Wonder if this is factored into the SVR increases we are seeing today?

#3 koala_bear

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Posted 01 May 2012 - 08:47 AM

http://www.telegraph...downgrades.html



Lloyds shareholders must love the genius that is Gordon.

Mystic Merv to the rescue?


I presume that this assumes the same level of lending by both continuing, surely as the cost of borrowing goes up, borrowing will go down a bit to compensate as well as IR going up?

Wonder if this is factored into the SVR increases we are seeing today?

#4 8 year itch

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Posted 01 May 2012 - 08:59 AM

Lloyds legacy SVR pegged at BR +2%. Egg on faces to get out of that.

There is no ladder.

JY


No need to sell up, the next phase of the economics cycle is going to be very positive for anyone that owns property.

All I'm sayings is, don't listen to the property bears people, they are wrong.


#5 thecrashingisles

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Posted 01 May 2012 - 09:00 AM

It's an odd headline which illustrates what a mess we're in. Are profits now determined solely by the stroke of a pen at the ratings agencies?

#6 The Masked Tulip

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Posted 01 May 2012 - 09:04 AM

Haven't looked at RBS shares for ages - didn't they rise from 19p to 28pish?
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#7 bland unsight

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Posted 01 May 2012 - 06:41 PM

It's an odd headline which illustrates what a mess we're in. Are profits now determined solely by the stroke of a pen at the ratings agencies?


Isn't it a post hoc fallacy. These funding costs were going to rise and profits were going to tank even if we confiscated every Moody computer and blackberry. Presumably money market participants do their own research these days - I'd speculate that the rating agencies are more like commentators than opinion formers.

Classic "bust" phase feedback loop, lower profits weakens ability to handle losses leading to rising funding costs, reducing lending which lowers profits and leads to the fall in the value of the loan collateral which causes funding costs to rise, which weakens profits...

It certainly does show how the banks are in a corner.

Could be totally wrong, but I can't see King stepping in to help them. Regardless of his role in getting us into this mess, it seems to me that his mood has changed.

Osborne has been loathe to borrow if he can avoid it, I can't see him chipping up to help out a political constituency upon whom the sun is most definitely going down.

It looks to me like the banks are on their own on this one, in which case they'll need to throw their customers overboard. Blowing up nonsense mortgages by the sh!t ton will get you de-leveraged faster than capitalising arrears, at least as I understand things... ;)

Hopefully the government's long game is to have the crash, put in the banking sector ring-fence as per the Vickers report and try and get the economy going before the next election. If that is their plan they must be itching for this crash.

I hate to say it and generations of forbears will be spinning in their graves, but I've got some time for these posh boys in Downing Street. Mind you as the act that followed Brown, they didn't have to do too much right to look like an improvement.

Edited by ChairmanOfTheBored, 01 May 2012 - 06:42 PM.

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#8 (Blizzard)

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Posted 01 May 2012 - 06:43 PM

Isn't it a post hoc fallacy.
...


Pretty much, yes.

EDIT: It does have some implications, for bureaucratic reasons. Banks and pensions funds have to apply different rules to debt with different ratings.

I never understood why banks outsource the basic function of a bank - assessing the credit quality of potential borrowers - to independent companies.

Edited by (Blizzard), 01 May 2012 - 06:46 PM.

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#9 R K

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Posted 01 May 2012 - 10:27 PM

Pretty much, yes.

EDIT: It does have some implications, for bureaucratic reasons. Banks and pensions funds have to apply different rules to debt with different ratings.

I never understood why banks outsource the basic function of a bank - assessing the credit quality of potential borrowers - to independent companies.


So they could focus on mis-selling PPI presumably.


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#10 bland unsight

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Posted 01 May 2012 - 10:35 PM

So they could focus on mis-selling PPI presumably.


I understand from younger colleagues that apparently I am not a "digital native" - too old.

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Nice work.

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#11 billybong

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Posted 01 May 2012 - 10:51 PM

But Citigroup warned these plans could be disrupted by the downgrades, which could also upset plans to privatise the lenders.


Well it's so easy. Just get the ratings agencies to say that the profits next year are going to be huge huge huge, problem solved. That's what they used to do and that was a great success for all concerned.

(Top tip - put the boomy bank rating in writing and sign it - that always convinces people just like signed party political manifestos)

#12 bland unsight

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Posted 01 May 2012 - 10:59 PM

Privatise the lenders? Really?

I'm not a betting man but if Lloyds Group are 3bn+ in the hole over PPI before they face the music on the property bust...

Once the market finds a mechanism to extract dividends from apocalyptic losses we can return to thinking about privatising lenders.
Wendell: It's a mess, ain't it, sheriff?
Ed Tom Bell: If it ain't, it'll do till the mess gets here.




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