LLOYDS BANKING Group, which had been one of the highest-rated banks in the world, was yesterday downgraded three notches by rating agency Moody’s amid continued worries about accelerating losses from HBOS.
Lloyds, the UK bank that rescued HBOS last October, said last week the newly-acquired lender had suffered a worse-than-expected £10 billion loss in 2008, triggering a share price collapse for the combined bank.
Yesterday morning Lloyds shares fell 12 per cent before recovering to close 8 per cent down at 56.4p amid concerns that Lloyds could need fresh capital to cover growing losses from HBOS.
Moody’s said it had downgraded Lloyds from its top rating of Aaa to Aa3 because integrating a group the size of HBOS “during a major market downturn may prove problematic and will be a substantial challenge for the management team”.
The rating agency added: “The downgrades reflect the high level of troubled and higher-risk exposures within HBOS, which Moody’s considers will weaken the profitability and capital adequacy of the overall group, as well as the very significant operational challenge of integrating a larger and weaker bank into the group.”
The rating agency said that the £1.5 billion of projected cost savings from the bank may take longer to generate than would otherwise be the case.
Moody’s also said it expected further writedowns would need to be taken on HBOS’s Alt A US mortgage portfolio, as well as writedowns on commercial property and its £30 billion book of self-certified mortgages, where borrowers have verified their own salary.
Lloyds said it had a strong tier-one capital position – a measure of a bank’s ability to absorb losses. Tom Rayner, banks analyst at Citigroup, yesterday revised upward his estimates that Lloyds could get through the downturn by raising £3 billion of capital. He now believes it might have to raise £11.2 billion, which could increase government ownership to 76 per cent.
Last week’s profit warning adds to pressure on Sir Victor Blank, Lloyds chairman, and Eric Daniels, chief executive, who pushed through the merger last autumn in spite of market turmoil. – (Financial Times service)
