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Moody's Downgrades Financial Strength Of Lloyds Tsb

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Moody's downgrades financial strength of Lloyds TSB

Moody’s Investors Service has downgraded the financial strength rating of Lloyds TSB by one notch from C+ to C and has placed the bank on a negative outlook.

Unsecured ratings for parent company Lloyds Banking Group as well as subsidiaries HBOS and Bank of Scotland have been affirmed.

Moody’s says Lloyds TSB’s financial strength has been downgraded as a result of the potential impact of the bank’s integration with HBOS, and the risk exposure to assets not protected by the government’s Asset Protection Scheme.

But Elisabeth Rudman, vice president, senior credit officer at Moody’s and lead analyst for Lloyds, says: “With the bank financial strength rating at C we recognize these challenges, but also take into account the underlying strength of the business model of Lloyds TSB.

“Together with the risk shield provided by the APS this should allow the group to emerge out of this integration process in a solid position as one of the UK's most important high street lenders.â€

Other pressures that could bear down on Lloyds TSB include having to set aside higher provisions to cover losses from the recession and the higher cost of deposit and market funding.

The ratings agency says that the APS will offer government protection to around £260bn of assets and that the added government capital should boost the overall strength of Lloyds Banking Group.

Moody’s says the financial strength rating of Lloyds Banking Group hinges on the APS because of the risk on the group’s books particularly from HBOS’ commercial loans.

Around 83% of assets placed in the APS by Lloyds Banking Group will come from HBOS.

This means that Bank of Scotland will have the insurance cover offered by the APS for nearly half its customer loan book.

Yes, I know...Moodys Schmoodys...but still, not good news for the black horse.

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Without government money APS/ Asset Protection Scheme they would be much worse off.

The C BFSR with a negative outlook reflects the ongoing challenges facing Lloyds Banking Group in the integration of HBOS, the high provisions resulting from the recession in the UK as well as the pressure on underlying profitability due to the higher cost of deposit and market funding, whilst also recognizing the benefit of the insurance cover of the APS for the riskier assets and the additional government capital (GBP15.6bn of B shares issued as payment for participation in the APS).

Moody's believes that the APS (which is expected to be finalized in the next few months and will cover around GBP260bn of assets) and the accompanying government capital should provide a significant underpinning to the financial strength of Lloyds Banking Group. Indeed the availability and expected full implementation of the APS is a critical requirement for the BFSR at the current level, given the risks within the group's books, particularly the HBOS commercial property exposures and higher-risk mortgage exposures.

Is £260Bn a good risk for the taxpayer to be carrying ?

Edited by Tom Peters

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I guess LLOY have stopped paying their subs to moody's.

Seriously, there is no stronger wbank than LLOY (apart from RBS). How many banks do you know with 60 million workers?

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ahhh good old ratings agencies.... the ones that said " with a smidgeon of AAA , a dollop of AA and a generous helping of sub-prime.... we can mark it off as .....AAA"

package it up and sell it on....

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  • 404 Brexit, House prices and Summer 2020

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