Shares boost as bank ratings fears allayed

Banking shares rallied in London yesterday after one of the world’s biggest credit ratings agency said lenders would not suffer an immediate downgrade as a result of the proposed radical shake-up of the sector.

The Independent Commission on Banking (ICB) earlier this week proposed that banks be forced to ring-fence their retail arms and hold more capital to limit the risk that they would need any further taxpayer bailouts.

Moody’s, one of the big three agencies, said the report “would not trigger any immediate rating changes for UK banks”, partly because they will have until 2019 to implement the changes. But it added that it would keep its ratings under review.

Shares in Royal Bank of Scotland rose 4.2 per cent, Lloyds lifted 5.3 per cent, while Barclays saw a gain of 2.5 per cent.

Elisabeth Rudman of Moody’s said the ICB’s proposals have not yet been formally accepted by the UK government and the legislation will require a longer-than-expected implementation period, in which time they could be altered.

However, the agency said the proposals may be negative for bondholders because they could be roped in to bail out banks if they get into trouble.

Meanwhile, Moody’s cut the credit ratings of two French banks – Societe Generale and Credit Agricole – because of their exposure to Greece’s debt, highlighting growing risks to Europe’s financial sector from a deepening eurozone sovereign debt crisis.

It kept a third bank – BNP Paribas – on review for a ratings downgrade, saying the lender’s profitability and capital base provided an adequate cushion to support its Greek, Portuguese and Irish exposure. BNP announced a plan to sell €70 billion (£61bn) in assets.

PETER CRIPPS AND SCOTT REID