The ratings agency has dropped Lloyds TSB from a C+ to C, citing the significant challenges lying ahead for the bank’s management to continue the integration of HBOS and its subsidiaries as well as the residual risk remaining in those assets which are not covered under the asset protection scheme.
Moody’s believes the asset protection scheme is set to cover around £260bn of assets and the accompanying government capital should provide underpinning to the strength of the Lloyds Financial Group. The firm says the APS is a critical requirement to the BFSR at the current level, given the risk on the group’s books particularly through HBOS commercial property exposures and higher-risk mortgage exposures.
Moody’s vice president senior credit officer Elisabeth Rudman says: “With the BFSR at C we recognise these challenges, but also take into account the underlying strength of the business model of Lloyds TSB.
“Together with the risk shield provided by the Asset Protection Scheme – which covers a significant amount of risks contained primarily within HBOS, but also within Lloyds – this should allow the group to emerge out of this integration process in a solid position as one of the UK’s most important high-street lenders. This is also incorporated in the Aa3 long-term debt and deposit ratings, which continue to factor in high systemic support for this group.”