UBS AG, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc had long-term issuer default grades cut by Fitch Ratings, which put more than a dozen other lenders on watch negative as part of a global review.
UBS’s long-term issuer default rating and its “support rating floor” were cut to A from A+ on a “view that the one-notch uplift for close affiliation with the Swiss state is no longer warranted,” the ratings firm said yesterday in a statement. Lloyds and RBS were lowered two steps to A from AA-as Fitch said the U.K. is less likely to provide future support.
Fitch also placed viability ratings, and in some cases credit grades, on negative watch for seven global banks including Goldman Sachs Group Inc. and Morgan Stanley because of new regulations and economic developments. It put European banks such as Credit Agricole SA on watch, based on sovereign debt concerns and said it would review Bank of America Corp.’s mortgage-litigation risks.
“Fitch systematically, like many of the rating agencies, seems to be working its way through the European banking community from the standpoint of raising awareness of potential capital inadequacies,” Adrian Miller, a New York-based fixed income strategist at Miller Tabak Roberts Securities LLC, said in a telephone interview. “This is more or less a macro call on the sector. It’s a continuation of a developing theme that’s been going on since July that, since that point, has intermittently sent shockwaves throughout the market.”
The euro weakened against the dollar and yen after Standard & Poor’s cut Spain’s credit rating, highlighting concern that rising defaults will threaten efforts to stem Europe’s sovereign-debt crisis. Spain’s long-term sovereign debt was downgraded to AA- from AA, making it the third cut in three years by S&P.
The seven global banks placed on watch by Fitch include Deutsche Bank AG, Credit Suisse AG, BNP Paribas SA, Societe Generale SA and Barclays Plc.
The move “reflects Fitch’s view that these institutions’ business models are particularly sensitive to the increased challenges the financial markets are facing,” Fitch analysts wrote in a statement. “These challenges result from both economic developments, particularly in the euro area, as well as a myriad of regulatory changes.”
German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged on Oct. 9 to deliver a plan to recapitalize Europe’s banks and address Greece’s debt crisis. European Commission President Jose Barroso said two days ago the region needs a coordinated approach to backstop the region’s banks and “get ahead of the curve.”
UBS’s viability rating, which measures creditworthiness and is meant to be internationally comparable, was placed on negative watch last month and was unaffected by yesterday’s action, Fitch said. UBS’s short-term rating was downgraded to F1 from F1+.
“UBS’s capital, liquidity and funding positions are sound and continue to be a source of competitive advantage,” Torie von Alt, a spokeswoman for the Zurich-based bank, said in an e-mail. “Fitch’s decision is not based on a change in its assessment of UBS’s intrinsic creditworthiness. It comes as part of a broader review of sovereign support assumptions for banks in several countries.”
The announcements reflect a broad view of the sector, “versus a specific statement about Bank of America,” said Jerry Dubrowski, a spokesman for the Charlotte, North Carolina-based lender. “As we have said before, we have significant reserves to cover potential mortgage repurchase claims.”
Spokesmen for Morgan Stanley, Credit Suisse, Barclays, Deutsche Bank and BNP Paribas declined to comment. Spokesmen for Societe Generale and Credit Agricole didn’t immediately respond to phone calls or e-mails after hours.
Fitch reduced its support rating floors -- which measure the likelihood of government support -- for systemically important British banks to A from AA- and A+. The ratings firm follows Moody’s Investors Service, which downgraded 12 British lenders, including RBS and Lloyds on Oct. 7, and also cited a lessening of government support.
“We are pleased that Fitch has commented on the steady improvement in our stand-alone risk profile,” Michael Geller, an RBS spokesman, said in an e-mail. “RBS has already completed its wholesale funding requirements for 2011 and continues to make progress in strengthening key balance sheet measures in the second half.”
Sarah Swailes, a Lloyds spokeswoman, said the ratings firm left the lender’s stand-alone rating unchanged and assigned a stable outlook.
U.K. Chancellor of the Exchequer George Osborne said last week the government is trying to move away from guaranteeing the country’s biggest banks. Lenders are under pressure from regulators to raise capital that’s been depleted by writedowns of Greek and other European peripheral sovereign debt.
At least 66 of Europe’s biggest banks would fail a revised European Union stress test and need to raise about 220 billion euros ($302 billion) of additional capital, Credit Suisse analysts said yesterday. RBS would need the most at about 19 billion euros, analysts led by Carla Antunes-Silva wrote in a note to clients.