RBS Credit Rating Downgraded by S&P on Bad Bank Unit

Royal Bank of Scotland Group Plc’s credit rating was cut by Standard & Poor’s, saying the government decision to set up an internal bad bank will undermine efforts to return the lender to profit.

“The changes amount to a material extension of RBS’s long-running restructuring, further delaying the bank’s return to profitability,” the ratings company said in a statement today. “In addition, considerable uncertainties remain regarding RBS’ exposure to future litigation and conduct risk.”

S&P downgraded RBS’s long-term debt rating by one step to BBB+ from A-. RBS said last week the bad bank unit would include 38 billion pounds ($61 billion) in toxic assets including 14.8 billion pounds being transferred from the core unit and 23.5 billion pounds from its non-core division.

It also cut the long-term rating of the bank’s Royal Bank of Scotland Plc unit by one step to A-, four levels above junk, and maintained a negative outlook.

RBS fell 1.9 percent to 321.80 pence in London. Britain’s largest state-owned bank has dropped 0.8 percent this year, while Lloyds Banking Group Plc (LLOY) is up 54 percent.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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