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Moody’s downgrades building societies to near junk-bond status

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by Kay Mitchell
Moody’s downgrades building societies to near junk-bond status

Ratings agency Moody’s have downgraded several building societies due to concerns they will be hit by losses due to the housing market slump.

The building societies that have been downgraded include Chelsea Building Society, downgraded from a C to E+, while West Bromwich has fallen from C- to E+.

Furthermore, Britannia, Newcastle, Norwich and Peterborough, Principality, Skipton, and Yorkshire building societies have been downgraded from C, to a riskier D.

In addition, Leeds and Nottingham have had their outlook changed to ‘negative’ due to the possibility their ratings may fall in the medium term.

Should the property market experience a peak-to-trough fall of 40%, Moody’s is concerned that these financial institutions will not have the funds to endure any further losses, and is also concerned about the strength of their mortgage books.

However, building societies have not reacted well to the downgrades as a spokesperson for Chelsea Building Society described it as a “knee-jerk reaction.”

Meanwhile, the Building Societies Association (BSA) criticised the decision and said it was “surprised” and “disappointed.”

Neil Johnson from the BSA said: “All the building societies are fundamentally sound despite the difficult economic environment we are in“.

The UK’s building societies have been relatively unscathed by the banking crisis but recently, several small societies have been rescued by their larger rivals.

Cheshire and Derbyshire building societies have been swallowed up by Nationwide, while Britannia Building Society is in the process of merging with Co-operative Financial Services, as are Scarborough and Skipton.

However on a positive note, building societies have benefited since the collapse of Icelandic banks, Icesave and Kaupthing Edge, and the near collapse of Northern Rock and Bradford & Bingley as savers seek a safe haven.

According to a recent report from the Building Societies Association (BSA), over one million people opened a new building society savings account last year.

The BSA said an additional 1.2 million accounts (net of closures) were opened during the 2008 year. As a result, an extra £9.9 billion was held by building societies in December 2008 than in January the same year.

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News posted: April 15, 2009

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