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Moody’s downgrades RBS over restructure concerns

Ratings agency Moody’s has downgraded Royal Bank of Scotland’s credit rating and placed it on a negative watch over concerns about the bank’s restructuring programme.

In January, RBS announced a pre-tax loss of £8.2bn for 2013 and announced a five year plan to make the business a UK focussed retail bank and move out of investment banking and withdraw from 20 overseas markets.

Moody’s says that in the long-term the restructuring plan will be good for bondholders as it should lead to a more efficient and less risky business but the costs of the restructuring means the bank will be much less financially flexible during the transition period.

Moody’s vice president and senior credit officer Andrea Usai says: “Over a longer-term horizon, RBS’s restructuring plan should be beneficial for creditors if executed according to plan. However, the plan is large and complex, carrying significant execution risk in the short to medium term, happening at a time when the bank has limited financial flexibility to manage unforeseen events, which could arise either from the plan or from other sources, such as further litigation or conduct costs.”

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