Moody’s downgrades societies en masse

Ratings agency Moody’s is downgrading several building societies\' credit ratings over fears of further losses.

West Bromwich’s bank fundamental strength rating has been downgraded to E + from C-, and Chelsea’s down from C to E+.

Other societies to be downgraded include Britannia, Coventry, Nationwide, Newcastle, Norwich & Peterborough, Principality, Skipton and Yorkshire.

As well as the societies, Alliance & Leicester has been downgraded to E+ from C+ and Abbey down to C- from C +.

Marjan Riggi, VP/senior credit officer and lead analyst for UK mortgage lenders at Moody’s, says the rating actions reflects Moody’s concern that the current economic crisis in the UK and globally will lead to significantly higher credit losses than previously anticipated, particularly among the residential and commercial real estate assets.

Riggi says: “These rating actions include the results derived from the analysis of various stress scenarios, incorporating a peak-to-trough house price decline of 40% for our base scenario, and compared this to banks’ exposure to different asset classes (prime, sub-prime, buy-to-let, self-certified, second lien etc.)

“Taking into account indexed loan-to-value-buckets which already reflected a double-digit house price decline.”

One of its the key concerns for mortgage lenders in the UK remains the amount of capital available to absorb the upcoming losses, especially those arising from specialist loan books and commercial real estate loans where concentration risks are high.

Alan Cleary, managing director of Exact, says the move is an overreaction and based more on the fact that rating agencies now have something to prove rather than on the credit quality of building societies.

He says: “Some mutuals have undoubtedly fallen on hard times in the past eighteen months, but just as many are fighting fit. The ratings agency methods are still opaque.

“Societies must stand united against this mass downgrade – performing their own granular due diligence would help them understand the credit and fraud risk they’ve got sitting on their books, and give them something concrete to take to ratings agencies in order to prove their worth.”