Royal Bank of Scotland has hit back at the move by Moody’s to include it in the ratings downgrade of 15 of the world’s biggest banks, dubbing the decision “backward looking”.
The decision by Moody’s to cut its long term rating for RBS by one notch to Baa1 with a negative outlook did not “give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile”, RBS said.
“Both Standard & Poor’s and Fitch Ratings have RBS rated ‘A’ with a stable outlook, and have upgraded the standalone rating by more than one notch over the past 18 months.”
RBS, which is 82 per cent owned by the UK government, on Friday reassured investors that its core tier one capital ratio – a key measure of financial strength for banks – stood at 10.8 per cent, up from 10.6 per cent in February.
Moody’s began reviewing the ratings of 17 banks with global capital market operations in February due to the “volatility and risks inherent in the capital markets business”.
The cut to RBS’s rating was among a raft of downgrades by Moody’s on Thursday. Others included Credit Suisse, HSBC, Morgan Stanley, UBS, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Royal Bank of Canada, and Société Générale.
The downgrades are likely to exacerbate pressure on the banks’ borrowing costs.
RBS said it had “made significant progress in strengthening its credit profile since 2008, which has been recognised by the other rating agencies”.
The bank pointed to an improved loan to deposit ratio – down from 154 per cent at its worst point to 106 per cent – and a liquidity portfolio of £153bn that exceeded its short-term wholesale funding of £80bn.
The Moody’s ratings cut is the second setback for RBS in recent days, after the amount that it expected to receive for selling 318 branches to Santander UK was pared back by £300m to £1.35bn.
RBS shares, which have lost more than two-thirds of their value over the past 12 months, fell by 1.8p to 241.53p in early Friday trading in London.
In a separate action outside the review, Moody’s downgraded the senior debt and deposit ratings for Lloyds Banking Group by one notch from A1 to A2 and lowered its standalone credit assessment from Baa1 to Baa2 .
Moody’s said its decision reflected Lloyds’ “sensitivity to the increasingly challenging operating environment in the UK and in Europe more widely and still-high reliance on wholesale funding“.
António Horta-Osório, Lloyds chief executive, said the ratings “recognised the substantial momentum we have made in de-risking our balance sheet and delivering on our strategy”.
Lloyds shares were virtually flat in early Friday trading in London, edging up 0.16p to 31.32p.