Belfast Telegraph

Banking shares rally over downgrade decision

By Peter Cripps

Uk banking shares rallied yesterday after a leading credit ratings agency said lenders will not suffer an immediate downgrade as a result of the proposed radical shake-up of the sector.

The Independent Commission on Banking (ICB) earlier this week proposed that banks be forced to ring-fence their retail arms and hold more capital to limit the risk that they would need any further taxpayer bailouts.

Moody's, one of the big three agencies, said the report "would not trigger any immediate rating changes for UK banks", partly as they will have until 2019 to implement the changes, but added it will continue to review ratings.

It comes after Barclays chief executive Bob Diamond gave the long-awaited report a warmer-than-expected reception, saying it was "a welcome step towards the greater clarity that banks need to be able to operate with confidence".

The news that Moody's does not plan to imminently downgrade its credit rating for the banks came as a relief to the sector. Shares in Royal Bank of Scotland rose by 7% yesterday, while Barclays and Lloyds were up by 4%.

Credit ratings agencies assess countries and companies as to how safe they believe it is to lend money to them.

Downgrades from agencies can cause companies' shares to slump, as shown when French banking shares crashed earlier this week amid rumours that Moody's would downgrade them over fears about their exposure to Greek debt.

Elisabeth Rudman of Moody's said that the ICB's proposals have not yet been formally accepted by the Government and the legislation will require a longer-than-expected implementation period, in which time they could be altered.