Fitch downgrades Lloyds and RBS credit ratings

| October 13, 2011

Credit ratings agency Fitch has today downgraded two UK banks and placed one on a negative watch.

Fitch downgraded Lloyds and Royal Bank of Scotland’s (RBS) long-term credit rating to an A rating from AA-.

It also placed Barclays on a negative watch, meaning a downgrade is possible in the future.

In a statement, Fitch said: “The banking system is not only large relative to the UK economy, but there is also more advanced political will to reduce the implicit support for the country’s banks.”

Following the downgrades, banking shares fell with Lloyds down 3.7% to 34.9p, while RBS lost 2.25% to 25.2p. Barclays was down 3.9% to 179.7p.

The downgrades come just a week after fellow agency Moody’s downgraded 12 UK financial institutions.

Moody’s cut its rating on state-owned banks RBS by two notches from Aa3 to A2 and Lloyds TSB by one notch from Aa3 to A1.

Furthermore, it downgraded the UK division of Spanish banking giant, Santander, by one notch to A1 from Aa3, while the Nationwide Building Society had its rating cut by two notches to A2 from Aa3.

Other institutions which suffered a cut were Co-operative Bank, and the building societies Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire.

In a statement, Moody’s said: “The downgrades have been caused by Moody’s reassessment of the support environment in the UK which has resulted in the removal of systemic support for seven smaller institutions and the reduction of systemic support… for five larger, more systemically important financial institutions.”

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