This morning Moody's resume its Freudian transference experiment borne out of its inability to downgrade the US by continuing to downgrade insolvent European banks, by downgrading a whole bunch of Portuguese and UK as of several hours ago. Per Bloomberg: "Nine Portuguese banks had their debt ratings cut by Moody’s Investors Service by one or two levels, which cited concern about funding, bad loans and holdings of government debt. Moody’s cut the “standalone” debt ratings of three banks, Banco Espirito Santo SA, Banco Comercial Portugues SA and Banco BPI SA, by two levels, the ratings company said in a statement today." Elsewhere, per BBC, "Moody's has downgraded the credit rating of 12 UK financial firms including Lloyds TSB, RBS, Nationwide and Santander UK. Moody's said it now believed the UK government was less likely to support some firms if they got into trouble. However, the firm emphasised that the downgrades did not "reflect a deterioration in the financial strength of the banking system". Moody's also downgraded nine Portuguese banks, blaming financial weakness. Shares in both RBS and Lloyds were down by about 3.5% in morning trading." Since all of this is certainly pried in (ask Dexia), we expect the weak hands shorting throng to continue its scramble to cover, until the next European bank fails, and the next, and so on until it s the longs turn to realize that not only has nothing improved but things are progressively getting worse.
More on Portugal:
The downgrades for BCP and BPI reflected Greek sovereign- debt holdings, potential lack of access to wholesale debt markets and “increased asset risk” caused by holdings of Portuguese government bonds, Moody’s said. The moves conclude a review begun on July 15, when Portugal’s sovereign rating was cut to Ba2 with a negative outlook from Baa1. Moody’s cut BES’s standalone rating to Ba3 from D+/Ba1 and BPI’s to Ba2 from Baa3. “BES has traditionally been the most active Portuguese bank in the capital markets as well as a wholesale-oriented bank displaying a high reliance on wholesale funding,” Moody’s said. BCP was cut to B1 from D/Ba2, in part because of its Greek subsidiary, Moody’s said. The ratings company said it cut standalone ratings one or two notches for six of the nine banks that had their senior debt ratings reduced today.
And the UK:
In a statement, Moody's said: "Moody's Investors Service has today downgraded the senior debt and deposit ratings of 12 UK financial institutions and confirmed the ratings of one institution. "The downgrades have been caused by Moody's reassessment of the support environment in the UK which has resulted in the removal of systemic support for seven smaller institutions and the reduction of systemic support... for five larger, more systemically important financial institutions."
The downgrades include a two-notch cut for government-controlled RBS, to A2 from Aa3, and a cut of one-notch, to A1 from Aa3, for Lloyds TSB, a division of part-nationalised Lloyds Banking Group.
Spanish bank Santander had its UK business downgraded by one notch, to A1 from Aa3, while Nationwide Building Society suffered a two-notch cut, to A2 from Aa3.
Other institutions downgraded were Co-operative Bank, and the building societies Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire.
The rating cuts did not concern HSBC, Barclays or Standard Chartered, Moody's said.
RBS said it was "disappointed" that Moody's announcement did not reflect the "significant progress" the bank had made to restructure it finances.
"We do, however, see the removal of implicit government support for the UK banking sector as being a necessary and important step forward as the sector returns to standalone strength," RBS said in a statement.
Lloyds said that it believed Moody's was reflecting what was already understood in the market, and that it would "have minimal impact on our funding costs".
Paradoxically, the UK bank downgrade was leaked minutes in advance by UK's City AM. How this whole move was leaked wholesale in advance is probably not completely irrelevant.