Moody's Cut Credit Rating for British Banks

October 08, 2011

Moody's is not seeing much strength in British banks after downgrading credit ratings for over a dozen on Friday. The investors service insisted that the downgrades have nothing to do with the government's public finances or any worsening in the strength of the financial sector, but believe the government will only focus on important banks and allow smaller institutions to fail. Among the downgrades, Moody's reduced its rating on government-controlled Royal Bank of Scotland by two notches to A2 and cut its rating on Lloyds TSB Bank by one notch to A1. Other downgraded banks include Spain's Banco Santander's British business and Nationwide Building Society. There were no changes in the ratings to big banks Barclays and HSBC.Royal Bank of Scotland (NYSE:RBS) is in the most trouble out of all the banks. The Financial Times reported that government officials are worried that RBS may need additional support depending on the outcome of a review of the industry by the European Banking Authority. To relive stress, RBS has cut its exposure to Greek sovereign debt by 50 percent. Moody's (NYSE:MCO) has a potential upside of 19.7% based on a current price of $31.54 and an average consensus analyst price target of $37.75.