Moody’s downgrades Clydesdale Bank’s deposit rating
The newly-independent bank had to delay its flotation this week when the ratings agency launched the review.
Clydesdale Bank’s deposit rating has been cut by ratings agency Moody’s over fears the bank could represent a bigger risk now that it has been sold off by its parent National Australia Bank (NAB).
Moody’s cut Clydesdale and Yorkshire Bank’s long-term deposit rating from Baa1 to Baa2 and held its short-term deposit rating flat.
However, the agency also upgraded the bank’s standalone baseline credit rating, as NAB has given Clydesdale an indemnity of £1.7bn against any future conduct costs such as PPI compensation claims.
“In Moody’s view, this indemnity, which is considered by the agency more than adequate for a bank the size of Clydesdale, materially reduces the tail risks associated with further, unexpected conduct charges and protects the bank’s capital,” the agency said.
Its standalone rating has been raised from Ba1 to Baa3.
But the sale by NAB still brings other risks, leading to the deposit rating downgrade.
“The rating actions take into account three main factors: firstly, our upgrade of Clydesdale’s standalone baseline credit assessment (BCA); second, the elimination of potential support from former parent National Australia Bank Limited on completion of its demerger; and thirdly, a shift in the bank’s liability structure exposing senior deposits and creditors to higher risk,” said Moody’s
Clydesdale had been due to float on the stock market on Tuesday but delayed the initial public offering by 24 hours as Moody’s was asking for more financial information.
The move added to the complications around the float, which was the first major stock market issue of the year, as other sellers have been put off by market turbulence.
The bank floated at 180p per share on Wednesday and its shares rose in conditional trading on the London Stock Exchange and Australian Securities Index.
Its shares in London currently stand at 195p, indicating investors were not worried by Moody’s decision.
“CYBG welcomes the upgrade of its standalone BCA rating, reflecting the improved credit fundamentals following the finalisation of the demerger,” the bank said.
“As announced on February 2, 2016, CYBG does not consider the downgrade of the long-term deposit and commercial paper rating to have any material impact on its or the bank’s ability to raise funding, the overall cost of funding or the financial outlook for CYBG or the bank.”
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