Moody's: UK Mortgage Lenders Still Face Hurdles; Some Risk

13th Jul 2010 23:30

By Marietta Cauchi Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. mortgage lenders still face challenges because of economic uncertainty and tougher capital requirements that will continue to weigh on more vulnerable companies, while the stronger players will be able to take advantage by making further acquisitions, Moody's Investor Service said Wednesday. Higher funding costs driven by the gradual withdrawal of government aid and intense competition for deposits is a key pressure which will make it difficult for many lenders to make profit at a time when growth in the lending market is flat, and when they need more capital to meet regulatory requirements, said Moody's. The investor advisory service cited Banco Santander S.A. (STD), Nationwide Building Society (NANW.LN) and Co-Operative Bank PLC (CPBB.LN) as those most likely to weather the continuing storm and even take advantage of it by snapping up weaker counterparts. "These are the mortgage lenders with more diverse product offerings, a wider and more diversified funding base and/or greater economies of scale - they have also been the earliest and most active consolidators in the industry," said Moody's. Other smaller lenders such as Newcastle and West Bromwich face further deleveraging or consolidation unless they recover profitability in the medium term, said Moody's. Spanish banking giant Santander first entered the U.K. market in 2004 with the acquisition of Abbey National PLC and is currently the only likely contender to buy the branch network being sold by Royal Bank of Scotland Group PLC (RBS). At the riskier end of the spectrum, Moody's said that a number of building societies would be loss making for the foreseeable future and needed additional capital to survive. These include Dunfermline, which has already been broken up because of expected high losses in its commercial book, and West Bromwich Building Society (WBS.LN), which had to exchange its lower Tier 2 securities for an equity-like instrument in a distressed exchange to boost its Tier 1 ratio. -By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; [email protected] (END) Dow Jones Newswires July 13, 2010 18:30 ET (22:30 GMT)