Moody’s downgrades RBS amid restructure concerns

Ratings agency Moody’s has down-graded Royal Bank of Scotland’s credit rating from A3 to Baa1 and placed it on a negative watch over concerns about the bank’s restructuring programme.

In January, RBS announced a pre-tax loss of £8.2bn for 2013 and announced a five-year plan to make the business a UK-focused retail bank, move out of investment banking and with-draw from 20 overseas markets.

Moody’s says in the long term the restructuring plan will be good for bondholders because it should lead to a more efficient and less risky business. But the restructuring costs mean the bank will be much less financially flexible during the transition period.

Moody’s vice-president and senior credit officer Andrea Usai says: “Over a longer-term horizon, RBS’s restructuring plan should be beneficial for creditors if executed according to plan. However, the plan is large and complex, carrying significant execution risk in the short to medium term, happening at a time when the bank has limited financial flexibility to manage unforeseen events which could arise either from the plan or from other sources, such as further litigation or conduct costs.”