The downgrades came last week in the wake of the part-nationalisation, part-sale of Dunfermline last month.
The mutuals are urgently requesting further information about Moody’s analysis. The ratings agen-cy hacked West Bromwich’s bank fundamental strength rating to E + from C- and Chelsea’s to E+ from C.
Other societies downgraded include Britannia, Coventry, Nationwide, Newcastle, Norwich and Peterborough, Principality, Skipton and the Yorkshire.
A spokeswoman for Chelsea says: “We think there are a few anomalies in the report and we’re going to go back to Moody’s to ask how it reached its decision.”
And David Cutter, chief executive of Skipton, says it is dismayed by Moody’s actions, which are particularly disappointing given that another major ratings agency, Fitch Ratings, affirmed Skipton’s ‘long-term issuer default rating’ of A just weeks ago, following its merger with Scarborough.
He says: “We will work closely with Moody’s as a matter of urgency to provide it with further clarity about our business and in particular the value our subsidiaries bring to Skipton Group as a whole, with a view to ensuring our rating is returned to where it should be at the earliest opportunity.”
The ratings agency made the downgrades after stress-testing how mutuals would perform against a base case scenario of a 40% fall in house prices from the peak of the boom. It also stress-tested a more extreme scenario based on a 60% fall.
Marjan Riggi, vice-president, senior credit officer and lead analyst for UK mortgage lenders at Moody’s, says: “These actions take account of the results derived from an analysis of stress scenarios, incorporating a house price decline of 40% for our base scenario.
“We compared this with banks’ exposure to different asset classes including prime, sub-prime, buy-to-let and self-cert.”
A Financial Services Authority spokesman says: “It is important to note that all the societies rated by Moody’s passed the stress tests we made them undertake to qualify for the government’s credit guarantee scheme last autumn, with the exception of Dunfermline.”
Last Friday Lord Turner, chairman of the FSA, sugges-ted that following the Dunfermline affair a tighter cap on commercial lending for mutuals may be necessary.
He says the regulator is developing guidelines to be issued in July that could impose constraints on the pace of societies’ diversification.
This could involve revisiting the legislative framework to allow for a tighter definition of commercial lending and a tighter cap on commercial lending than the current 25% of total assets.