Fresh fall in bank shares on second downgrade

SHARES in Royal Bank of Scotland and Lloyds took a hit yesterday as a second ratings agency downgraded the credit status of the two bailed-out banks.

Fitch’s action followed a similar move by rival agency Moody’s and was also based on a reduced likelihood of further state assistance for the banking sector.

The downgrade came as analysts at Credit Suisse calculated that at least 66 of Europe’s biggest banks would fail a revised European Union stress test and would need to raise about €220 billion (£192bn).

It claims Royal Bank of Scotland, Deutsche Bank and BNP Paribas would need to raise the most, a combined total of about €47bn. Societe Generale and Barclays would each need about €13bn of fresh capital. RBS insists it is well-capitalised.

Fitch downgraded RBS’s and Lloyds’s long-term debt rating by two notches to A from AA-. Shares in RBS closed off 1.65p, at 24.16p. Lloyds fell 1.98p, to 34.26p.

The Independent Commission on Banking’s (ICB) recommendation last month that banks ring-fence their retail units from investment banking and hold more capital has also been seen as negative for their credit rating.

However, ICB chairman Sir John Vickers told the Treasury select committee that the ratings downgrades showed credit agencies saw the suggested banking reforms as progress in ultimately getting taxpayers off the hook.

RBS said: “While RBS is among the banks downgraded, we are pleased that Fitch has commented on the steady improvement in our standalone risk profile.”

Lloyds said: “It is important to note that the standalone rating remains unchanged and the outlook given as stable.”