Moody's puts Derbyshire on review for downgrade

21 January 2008

Moody's has placed Derbyshire on review for a possible downgrade due to its sub-prime exposure.

Moodys investors put the building societys bank financial strength rating, long and short-term bank deposit ratings and senior unsecured debt ratings on review for possible downgrade

The review will focus on the possible impact of margin compression in the sub-prime sector on the society's profitability, which Moody's says is already "modest ".

It will also consider the higher cost of wholesale funds and the society's increasing exposure to the sub-prime sector as well as the likely performance of this lending in the difficult conditions the market is currently facing.

The statement from Moodys says: Derbyshire has a relatively high exposure to specialised segments of the UK mortgage market, including sub-prime, self-cert and buy-to-let mortgages which represent a growing proportion of the total loan book.

These specialist loans have been acquired from other mortgage lenders as well as originated directly by the society.

Although Moody's recognises that much specialised lending has high credit quality, in the rating agency's view the growing exposure to these market segments that have not been tested through a significant downturn increases the long-term credit risk in the book.

Moody's also noted that Derbyshire's liquidity ratios remain good and its capitalisation and provisioning levels are solid.

It says the society has a stable, but essentially limited, regional franchise, as well as a modest profitability and has expanded into specialised lending via its specialist subsidiary.

Derbyshires bank financial strength rating is currently C, its long-term bank deposits rating is currently A2, its short-term bank deposits rating is prime-1 and its senior unsecured debt rating is A2.

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