Moody's Investors Service - a rating arm of
) - kept the long-term ratings on
The Royal Bank of Scotland Group plc
) and its subsidiaries under review for downgrade. The rating
agency cited the British government's decision of a possible
break-up of the bank as the reason behind its action.
Currently, The Royal Bank of Scotland - a subsidiary of The Royal
Bank of Scotland Group plc - has a long-term debt and deposit
rating of "A3" and a standalone bank financial strength rating of
"D+", both of which have been placed under review.
Additionally, Moody's placed the standalone credit assessments
and all other long-term ratings of The Royal Bank of Scotland's
subsidiaries - National Westminster Bank (Natwest) plc and Royal
Bank of Scotland NV - under review.
Concurrently, Moody's subjected the long-term debt and deposit
ratings of Ulster Bank Limited and Ulster Bank Ireland Limited
and the ratings of the banks' subordinated debt instruments to
review. Ulster Bank's short-term ratings are to be reviewed as
well. Moody's expectation of the break-up of The Royal Bank of
Scotland by the government might affect the bank's capability of
offering support to these Northern Ireland institutions.
Reason Behind Downgrade
Moody's stated that the revision of the ratings was due to the
British government's decision to evaluate the breaking up of The
Royal Bank of Scotland, and moving off its problematic assets
into a separate bank. The British government had bailed out The
Royal Bank of Scotland for a sum of almost £45 billion in 2008,
making it the costliest bank bailout in history. However, the
British Treasury is struggling to reduce its 81% stake in the
bank, with its shares trading for a lesser price than the
government paid for them.
The rating agency believes that the government's review of the
troubled bank will create more uncertainty for bond holders.
Additionally, according to Moody's, the government decision to
shed the high risk and/or impaired assets from the bank may
involve losses for creditors.
Initially, the British government was commended for its efforts
in dealing with the financial crisis in 2007. The government
bailed out as well as attained large stakes in The Royal Bank of
Scotland and Lloyds Banking, as well as several other smaller
However, almost 5 years after the bailout, the extensive practice
of restructuring the troubled banks is putting the weak British
economy under pressure. This is partly due to the government's
decision in 2008 to take a passive approach to managing its
stakes in the deeply troubled banks. Anticipating the banks'
quick return to their private ownerships, the government did not
to intrude into their strategies.
Among such banks, one was The Royal Bank of Scotland, which
continued for years since the economic crisis without
restructuring its troubled and non-profitable units, forcing the
government to contemplate a split. However, the bank's low share
price means that a sale would likely cause taxpayers losses worth
billions of pounds.
However, we expect The Royal Bank of Scotland's diversified
business model and sound financial position to contribute to its
overall growth in the future.
The Royal Bank of Scotland currently carry a Zacks Rank #3
(Hold). Some better performing foreign banks include
Mitsubishi UFJ Financial Group, Inc.
Sumitomo Mitsui Financial Group Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
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