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Related Companies Lloyds Banking Group Plc (LLOY) Lloyds TSB Bank Plc

Related Articles 11/3/2009 Lloyds details plan to avoid APS 6/22/2009 Moody's downgrades Lloyds TSB Bank

Moody's on Nov. 3 cut the bank financial strength rating of Lloyds Banking Group Plc unit Lloyds TSB Bank Plc to C- from C, with the outlook remaining negative.

The senior subordinated debt rating of the unit was also lowered to Baa3 from Baa1, with a negative outlook, while the preferred stock rating was cut to Ba2 from Baa3.

At the same time, the rating agency affirmed the senior unsecured debt and deposit ratings of the unit at Aa3 as well as the senior unsecured rating of Lloyds Banking Group at A1, each with a stable outlook.

The short-term P-1 ratings of these entities were also affirmed. Other affirmed ratings of the unit are the junior subordinated debt at Ba1, under review for possible downgrade; the cumulative preference shares rating at Ba2, under review for possible downgrade; and the noncumulative preference shares at B3, with a stable outlook.

Lloyds Banking Group's senior subordinated debt rating was downgraded to Ba1 from Baa2, with a negative outlook, while its noncumulative preference shares were affirmed at B3, with a stable outlook.

These ratings actions follow proposals the group set forth to avoid the U.K. government's Asset Protection Scheme by pursuing an alternative capital-raising plan. With the group's decision to avoid the APS, the capital being raised should provide the group with enough support against remaining expected losses, said Elisabeth Rudman, senior credit officer at Moody's and lead analyst for Lloyds.

The downgrade of the unit's bank financial strength rating reflects the fact that Lloyds is more exposed to an unexpected deterioration in asset quality, Rudman added, noting that Lloyds TSB Bank's Aa3 debt ratings remain unchanged because the agency assumes no change in the likelihood of support.

Moody's estimates that Lloyds Banking Group could continue to face a further fall in asset quality over the coming quarters, particularly in commercial property exposures and higher-risk mortgages.

The affirmed Aa3 senior debt and deposit ratings take into consideration the agency's view that the group remains of high systemic importance in the U.K. financial system.