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Nationwide: More downgrades are on the way

Nationwide expects to see further downgrades of banks and building societies as the Government reduces its support for financial institutions.

Giving evidence to the Treasury select committee last week on the Independent Commission on Banking’s report, Nationwide chief executive Graham Beale said Standard & Poor’s and Fitch are still in the process of re-evaluating their ratings in light of the Government’s drive to end the too-big-to-fail culture.

Last month, Moody’s downgraded 12 UK financial firms, including Nationwide, which suffered a two-notch reduction from A2 to Aa3. The rating agency says the downgrades are a result of the Government’s efforts to reduce the chances of taxpayers being called on to support financial institutions.

Beale said: “Our rating with Moody’s is stable, so that suggests it is content for the immediate future but the same process is going on at the other two principal agencies, so I expect there will be more rating adjustments as a result of removing systemic support for financial institutions.”

Last month, Fitch downgraded Lloyds Banking Group and Royal Bank of Scotland from AA to A and placed Barclays on “rating watch negative”, one step away from a downgrade. It said the move was in response to a perceived reduction in Government support for systemically important banks.

A Fitch spokeswoman says its review of banks and building societies is ongoing.

Beale accused Moody’s of being heavy-handed and called for more transparency within rating agencies. He said: “There has been tiny movements in what we do but the downgrade is disappointing. We think the raters are being heavy-handed with their assumptions and there is a lack of transparency in what they do.”

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