Banks warned of Moody’s downgrade

Lloyds Banking GroupLast Updated at 24 May 2011, 04:43 ET *Chart shows local time price change %50.51 p–

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Fourteen UK banks and building societies have been told that their credit ratings may be cut because of the withdrawal of government support.

Moody’s said on Tuesday it was reviewing banks including Lloyds and Royal Bank of Scotland, hitting the share prices of both firms.

Moody’s sees less government support as possibly weakening the creditworthiness of some financial institutions.

A downgrade would raise borrowing costs for banks and building societies.

The Bank of England has already said that an emergency funding line – the Special Liquidity Scheme – will not be rolled over when it expires in January 2012.

Elisabeth Rudman, a Moody’s senior credit officer, said: “The reassessment is not driven by either a deterioration in the financial strength of the banking system or that of the government.”

“It has been initiated in response to ongoing guidance from the UK authorities – the Bank of England, the Financial Services Authority and the Treasury.”

The agency said that current levels of state support for the financial sector adds two to five notches of ratings uplift for the large UK banks and one to five notches of uplift for the smaller firms.

The ratings of Barclays and HSBC were not placed on review by Moody’s.

Shares in Lloyds and RBS fell about 1%, but recovered slightly after the initial surprise at Moody’s announcement subsided.

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