UPDATE: RBS disappointed with Moody's downgrade

7th Oct 2011 09:01

Royal Bank of Scotland (RBS) was the heaviest faller on the FTSE 100 on Friday after having its credit rating cut by Moody's, a move which poured more fuel on rumours that the firm could need an extra injection of capital from the government.Shares in the part-nationalised lender were over 4% lower by 13:14, after the ratings agency downgraded its rating, along with 11 other financial institutions.Moody's slashed RBS's rating be two notches, reflecting the ending of the government's implicit guarantee for all banks.Lloyds TSB, Santander UK and the Co-Operative Bank were downgraded one notch, while Nationwide went down two levels. Smaller institutions, including Clydesdale Bank were also hit.RBS issued a statement this morning saying, "While RBS is among the banks to be downgraded Moody's has affirmed the Group's standalone rating and confirmed that the action does not reflect any deterioration in the financial strength of the UK banking system."The bank notes that it has made "significant progress" in strengthening its credit profile since 2008, when it received a £45bn bail-out from the UK government, leaving the firm 83%-owned by the state. As of 30 June, the core tier one capital ratio stood at 11.1%."We are disappointed that Moody's have not acknowledged the progress we have made in strengthening the bank's credit profile," RBS said.However, an article this morning by the Financial Times, speculated that the firm may have to receive more aid after its core tier one capital ratio factors in the banks' exposure to the escalating debt crisis in Europe."[RBS's] sovereign exposure is not fundamentally worrying but if there is a broader European drive to recapitalise the banks it's conceivable they may need more government money," a government official told the paper.Nevertheless, the bank claims that it has "already completed its wholesale funding requirements for 2011 and continues to make excellent progress in strengthening key balance sheet measures in the second half to date."BC