Moody's downgrades RBS on fears of higher costs

14th Mar 2014 09:10

Rating agency Moody's has downgraded UK state-backed Royal Bank of Scotland (RBS), saying financial shocks or unforeseen cost hikes could scupper its huge turnaround plan.Moody's said it was reducing RBS' supported long-term debt and deposit ratings to Baa1 from A3, with a negative outlook.The agency said its new stance on RBS, which is facing an overhaul to slim it down and focus on UK retail and business banking, better reflected the risk the restructuring poses to bondholders and its financial inflexibility during the shake-up.Moody's said the "ambitious and comprehensive" restructuring should benefit creditors of the 81% state-owned bank in the long-run if it goes to plan.But the agency said the programme was big and complex and presented significant short to medium-term risk at a time when RBS had limited cash to manage unforeseen events such as more litigation or conduct costs. "The implementation of this initiative implies the associated large credit/disposal costs and material restructuring charges estimated to be around £5.2bn over the period of the plan, will easily depress profitability over the next few years," said Andrea Usai, Moody's Vice President - Senior Credit Officer.PW