Blow as Yorkshire Bank’s credit rating is cut for the third time

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YORKSHIRE Bank and its sister Clydesdale have had their credit rating cut for the third time in three months.

Ratings agency Standard & Poor’s downgraded the banks’ long term credit rating from A+ to BBB+, which could make it more expensive for the banks to raise funding.

S&P also downgraded the banks’ parent company National Australia Bank from AA to AA-.

S&P said NAB’s banking operations in the UK and New Zealand have weaker economic risk scores than Australia.

It added: “We are continuing to closely monitor NAB’s UK strategy, including the potential for positive or negative ratings developments.

“This is most likely to occur should NAB eventually sell Clydesdale, which we independently believe is a possibility, or alternately that NAB will retain Clydesdale and potentially build upon its UK beach head.”

Yorkshire Bank is a trading name of Clydesdale, which means any references to Clydesdale include both banks.

“In the interim, we will continue to monitor Clydesdale’s stand-alone credit profile, which has been negatively affected by the recently difficult UK economic environment,” added S&P.

Agency Moody’s cut its rating on Clydesdale and Yorkshire two months ago, swiftly followed by Fitch.

Fitch said the downgrade reflected its belief that the strategic importance of the two banks to their parent, National Australia Bank, may be “diminishing slightly”.

It added that more stringent regulation and a less favourable economic environment in the UK may indicate that the UK banking sector has become less attractive to foreign banks.

Yesterday Cameron Clyne, group chief executive of NAB, said: “The change in Clydesdale Bank’s rating is largely attributable to a change in how S&P evaluates parent company support.

“While S&P has changed its assumptions, in substance, the nature of NAB’s support for Clydesdale Bank is unchanged.

“Clydesdale Bank is a profitable and well-run bank. As was stated in the 2011 annual review, Clydesdale Bank will maintain a careful and prudent approach to sustaining the strength of its balance sheet.

“Clydesdale’s focus remains on long-term security and stability as a priority over short-term profits.”

David Thorburn, UK chief executive, added: “In common with other UK banks we have been reviewed by S&P under their new ratings criteria.

“Our movement is largely attributable to the way parent company support is evaluated as part of the new methodology.

“This is disappointing as the nature of NAB’s support for Clydesdale remains unchanged.

“It is important to recognise that we are a profitable, conservative bank with sound capital and funding and our parent, NAB, is a highly rated bank by global standards.”

Earlier this week S&P cut its ratings on 15 big global banks.

Royal Bank of Scotland and Lloyds were the only European banks to have their short term credit ratings cut – a reduction to A2 from A1. Analysts said that when this happens, it can be a step change that increases funding costs.

Lloyds said it did not expect the rating action to have a material impact on its funding position, as the bank funds itself through subsidiaries that are unaffected.

S&P’s long-term rating changes included one notch downgrades on Barclays, HSBC, Bank of America, Citigroup, Goldman Sachs and UBS.

While the downgrades were driven by a revision of the agency’s internal models and not because of a change in the banks, they will have a real impact on funding costs for the sector, already on edge because of Europe’s debt crisis.

Andrew Fraser, investment director at Standard Life, said: “It will likely raise concerns about their short-term funding because they will be sidelined by money-market funds who are the traditional buyers of that short-term paper.

“The timing of the statement is perhaps more significant than its content because it comes at a time when liquidity is under pressure at banks.”

European Union talks to save the single currency limped ahead this week.

Ahead of Standard & Poor’s downgrades, rival Moody’s said it could downgrade the subordinated debt of 87 European banks. Moody’s is concerned that Governments are too cash-strapped to bail out holders of riskier bank debt.

ros.snowdon@ypn.co.uk