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January 29, 2010    

S&P downgrades Britain’s banking sector

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by Kay Murchie

International credit rating agency, Standard & Poor’s (S&P), has downgraded Britain’s banking sector.

The agency is downgrading Britain’s banking industry by one tier to its Group 3 out of 10. Banks in Canada, France and Germany are in the first and second groups.

It said: “We no longer classify the United Kingdom (AAA/Negative/A-1+) among the most stable and low-risk banking systems globally.”

Following the announcement, the pound fell sharply against the US dollar as the agency explained its decision to downgrade the sector after putting Britain on “negative watch” last May.

S&P said the country’s “weak economic environment” and the banks’ “high” dependence on Government support had led it to its decision.

Nigel Greenwood, S&P credit analyst, said he believes that “the weak UK economy will continue to hinder the credit profile of the UK banking industry.

“The near collapse of a number of financial institutions damaged the reputation of the UK banking system. This led to wide-ranging state support, including significant government stakes in two of the four major banking groups. We note that there is a wide dispersion in credit quality among UK banks and that some banks did not require direct government support,” he added.

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