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Lloyds downgraded as HBOS integration continues

24 June 2009 / by Rebecca Sargent
Lloyds has been downgraded by Moody's Investors Services as its financial strength continues to come into question since its HBOS takeover bid began.

The announcement saw Lloyds' bank financial strength rating (BSFR) go from C+ to C, with a negative outlook as a result of the banks' strife since it moved to merge with troubled HBOS late last year.

Commenting on the decision, Elisabeth Rudman, vice president and senior credit officer at Moody's said: "The lowering of Lloyds TSB's BSFR by one notch to C incorporates the significant challenges lying ahead for the bank's management to continue the integration of HBOS and its subsidiaries, as well as the residual risk remaining in those assets that will not be covered by the Asset Protection Scheme."

Nevertheless, Rudman added: "With the BFSR at C we recognise these challenges, but also take into account the underlying strength of the business model of Lloyds TSB.

"Together with the risk shield provided by the Asset Protection Scheme – which covers a significant amount of risks contained primarily within HBOS, but also within Lloyds – this should allow the group to emerge out of this integration process in a solid position as one of the UK's most important high-street lenders."

So far, Lloyds Banking Group has announced around 5,000 job cuts since the merger between Lloyds TSB and HBOS. However, the banking group does have the potential to emerge victorious; it is believed that the Lloyds and HBOS combined mortgage market share is more than 25 per cent, which has sparked concerns over market competition.

© Fair Investment Company Ltd