For Britain's banks, the perception that European banks are weak and too exposed to sovereign debt is a bigger problem than a Moody's downgrade, says the BBC's business editor, Robert Peston. He writes: The UK banks' downgrade is an inevitable consequence of government policy to reduce the likelihood that they would be bailed out in a crisis - of which the most conspicuous manifestation has been the Vickers' commission recommendations to put retail banks behind a ring fence and make creditors to banks explicitly liable to losses. The important point, for today however, is that these downgrades have been anticipated and discounted by the market for some time, so their real economic impact on the affected banks should be negligible. Mr Peston also gives an interesting run-through of how much capital European banks, including RBS, Lloyds and Barclays, would have to raise under a new set of stress tests, based on figures from French bank Natixis. If RBS was obliged to raise fresh capital, the government would be caught between a rock and a hard place, he writes. The bank has the right to sell new shares to the government at 50p (vs. a 23.5p share price now) under the terms of its previous bailout. This would obviously incur a loss for taxpayers. But the alternative would be the Government fully nationalising RBS... Lloyds has also responded to the Moody's ratings cut on the debt of 12 UK banks this morning. They are also playing down the move. 
Access Investments-Building Awareness - European Union-ROMANIA
Friday, October 7, 2011
For Britain's banks, the perception that European banks are weak and too exposed to sovereign debt is a bigger problem than a Moody's downgrade, says the BBC's business editor, Robert Peston. He writes: The UK banks' downgrade is an inevitable consequence of government policy to reduce the likelihood that they would be bailed out in a crisis - of which the most conspicuous manifestation has been the Vickers' commission recommendations to put retail banks behind a ring fence and make creditors to banks explicitly liable to losses. The important point, for today however, is that these downgrades have been anticipated and discounted by the market for some time, so their real economic impact on the affected banks should be negligible. Mr Peston also gives an interesting run-through of how much capital European banks, including RBS, Lloyds and Barclays, would have to raise under a new set of stress tests, based on figures from French bank Natixis. If RBS was obliged to raise fresh capital, the government would be caught between a rock and a hard place, he writes. The bank has the right to sell new shares to the government at 50p (vs. a 23.5p share price now) under the terms of its previous bailout. This would obviously incur a loss for taxpayers. But the alternative would be the Government fully nationalising RBS... Lloyds has also responded to the Moody's ratings cut on the debt of 12 UK banks this morning. They are also playing down the move. 
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The chancellor, George Osborne, has expressed confidence in the viability of the nation's banks after a leading credit rating agency cut its ratings on 12 British financial institutions.
Moody's cut its ratings on RBS, which is mostly owned by the taxpayer, by two notches from A2 to Aa3, and it downgraded Lloyds TSB by one notch to A1 from Aa3.
It also cut its ratings on Santander UK, Co-operative Bank, Nationwide and seven other smaller British building societies.
In an interview with the Today programme, Osborne said the move reflected the fact that the government was trying to make the banks more independent and less reliant on a taxpayer bailout in the event of a crisis.
But he insisted the British banking sector was sound and was not facing the problems of some banks in the eurozone.
The chancellor said he had been aware that the news was coming, and that the reasoning for the Moody's decision should be considered in detail.
"One of the reasons they are doing this is because they think the British government is actually moving in the direction of trying to get away from guaranteeing all the largest banks in Britain," Osborne said.
"In other words, trying to deal with the 'too big to fail' problem through the report we've commissioned from John Vickers and the ideas around ring-fencing and so on, protecting high street banks from investment banking activities.
"People ask me: 'How are you going to avoid Britain and the British taxpayer bailing out banks in the future?' This government is taking steps to do that. And therefore credit rating agencies and others will say these banks have got to show that they can pay their way in the world."
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