30 November 2011
I had a bizarre sense of déjà vu yesterday on learning of the mass downgrade of 37 of the world’s largest banks, including the Royal Bank of Scotland, by Standard & Poor’s.
Something very similar took place in July 2007, when Moody’s downgraded hundreds of CDOs – opaque bundles of securitized ‘toxic’ subprime US mortgages – to which it had erroneously given AAA status. Invariably such mass downgrades are an admission by the credit rating agencies that they have got things terribly wrong, and a sure sign that they are belatedly catching up with financial and economic reality.
In the case of Moody’s mass downgrade of CDOs, it triggered similar moves from other rating agencies and was widely seen as having triggered the credit crisis.
Among the 37 banks downgraded by S&P yesterday was Edinburgh-based Royal Bank of Scotland, together with nine of its subsidiaries. Other UK banks that were downgraded including Lloyds Banking Group, Barclays and HSBC.
It’s also worth pointing out that, on 7 October, Moody’s downgraded several UK banks including RBS and Lloyds in view of the government’s reduced governmental ability and/or appetite for providing them with subsidies and bailouts. Here’s the detail of yesterday’s S&P downgrades of RBS and subsidiaries:-
Bank/subsidiary New rating Old rating
Royal Bank of Scotland Group PLC A-/Stable/A-2 A/Stable/A-1
Citizens Bank of Pennsylvania A/Stable/A-1 A-/Stable/A-2
National Westminster Bank PLC A/Stable/A-1 A+/Stable/A-
RBS Citizens NA A/Stable/A-1 A-/Stable/A-2
RBS Securities Inc. A/Stable/A-1 A+/Stable/A-1
Royal Bank of Scotland N.V. A/Stable/A-1 A+/Stable/A-1
Royal Bank of Scotland PLC A/Stable/A-1 A+/Stable/A-1
Royal Bank of Scotland PLC (Connecticut) A/Stable/A-1 A+/Stable/A-1
Ulster Bank Ltd. BBB+/Stable/A-2 BBB+/Negative/A-2
Ulster Bank Ireland Ltd. BBB+/Stable/A-2 BBB+/Negative/A-
Here’s the full list of 37 banks downgraded by Standard & Poor’s.