Moodys puts Britain on watch for downgrade

4:21am UK, Tuesday February 14, 2012



Ed Conway, economics editor





Credit ratings agency Moody's has issued official notice to
Britain and the Bank of England that their credit ratings are on watch
for a potential downgrade.


The agency blamed "increased uncertainty regarding the pace of fiscal
consolidation in the UK due to materially weaker growth prospects over
the next few years, with risks skewed to the downside".


It also said the economy remains vulnerable to the eurozone crisis.


France and Austria have been similarly graded while the ratings for
Italy, Spain, Portugal, Slovakia, Slovenia and Malta have been lowered.


The decision is a surprise to investors and economists.


They had assumed that Moody’s would follow the lead of its fellow
ratings agencies, Fitch and Standard & Poor’s, and downgrade euro
members while leaving Britain's rating untouched.


It also comes as the rate of inflation
is expected to drop in Britain to its lowest level in two years in a
sign that the pressure on cash-strapped households has started to ease.


Although Moody's decision still leaves the UK’s top-level AAA rating
unchanged, a negative outlook implies that the rating could be
downgraded in the coming years.


The agency said specifically that this would happen "if Moody's were
to conclude that debt metrics are unlikely to stabilise within the next
3-4 years".


The decision is a significant blow for the Chancellor, who made it
one of his manifesto pledges at the 2010 election to safeguard Britain’s
AAA rating.











Mr Osborne: Britain cannot waiver from dealing with debts




In a statement released after the Moody’s decision was announced,
George Osborne said: "This is proof that, in the current global
situation, Britain cannot waiver from dealing with its debts.


"Moody’s are explicit that it is only the Government's 'necessary
fiscal consolidation' that is stopping an immediate downgrade, which
would happen if there were any 'reduced political commitment to fiscal
consolidation including discretionary loosening'.


"This is a reality check for anyone who thinks Britain can duck confronting its debts."


Labour's Shadow Chancellor Ed Balls said: "Moody's is clear in its
statement that the primary reason for Britain's negative outlook is
'weaker growth prospects' which are making it harder to get the deficit
down.


"With our economy now in reverse, unemployment at a 17 year high and
£158bn extra borrowing to pay for economic failure, the case for a
change of course and a real plan for jobs and growth is growing by the
day."

Banks

By JULIA WERDIGIER

Scott Eells/Bloomberg NewsMoody’s Investors Service headquarters in Manhattan.LONDON — Moody’s Investors Service has put Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS and more than 100 other financial institutions on notice.
Citing increasingly challenging market conditions, the credit rating agency said it would review its grades for 114 banks based across Europe, as well as eight other financial institutions based elsewhere, including JPMorgan Chase, Bank of America and Nomura.
Moody’s indicated it could cut some credit ratings by as much as three levels as it weighed the risks to the banks’ investment banking models and large capital market exposures.

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“The combination of changed operating conditions and increased regulatory requirements and restrictions has diminished these firms’ longer-term profitability and growth prospects,” Moody’s said in the statement, which was released on Wednesday after markets closed in New York.
In a separate statement from London, Moody’s said it was reviewing its ratings for banks based in European countries, including Italy, Spain and Britain. It cited the prolonged euro crisis, concerns about government debt and risks linked to large capital market businesses as reasons.
Banking stocks fell in Europe on Thursday. In London, Barclays shares fell 1.5 percent and HSBC was down 1.2 percent. In Paris, Société Générale, which also released earnings that missed forecasts on Thursday, and Crédit Agricole both fell more than 3 percent.
“The current environment is characterized by disrupted markets and a deteriorating, uncertain economic outlook,” Moody’s said. “In many countries, weakening sovereign creditworthiness is exacerbating these negative characteristics.”
Moody’s said it was reviewing most banks in Italy, Spain, France and Britain. They include Barclays, BNP Paribas and Crédit Agricole. It also cited “fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions” among the reasons for its action.

Tags

Deutsche Bank, Goldman Sachs, Moody's Investors, Morgan Stanley
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