Lloyds and RBS are set to be among the banks hardest hit by the planned dowgrades by Moody’s, the most important of the three established ratings agencies reports The Telegraph.
Profits at Lloyds are forecast to fall 16pc next year, while RBS’s earnings will drop 8pc, as the banks face higher funding costs, as a result of their downgrades by Moody’s, according to Citigroup.
Both banks have put in place major turnaround programmes aimed at returning them to profitability. But Citigroup warned these plans could be disrupted by the downgrades, which could also upset plans to privatise the lenders.
Lloyds, which is 41pc owned by the state, is currently rated A1 by Moody’s but is expected to be downgraded by two notches to A3. Citigroup said the lender would as a result have to put up a further £24bn of assets against its secured borrowings, to compensate for the increase in its perceived riskiness.
The report from Citigroup comes as Lloyds prepares to unveil on Tuesday its results for the first three months of the year, which are expected to show the bank made a profit of about £200m.
This compares with a loss of more than £3bn for the same period last year after the lender took a £3.2bn provision against payment protection insurance (PPI) claims. On Monday it was reported that this PPI provision could have increased by £300m.
At RBS the impact of the Moody’s downgrade would be more mild, but the bank is still expected to see its profits next year cut by as much as 8pc as a result of any negative move by the ratings agency.