The UK’s major banks are exposed to multi-milllion pound fines and lawsuits that could dent their profits, the rating’s agency Moody’s warned on Tuesday, as it downgraded its outlook for the sector because of new rules intended to prevent another taxpayer bailout.
The agency reduced its outlook from stable to negative, because of the uncertainty faced by lenders to banks as a result of the ringfencing high street arms from “casino” investment banking businesses. The new rules will mean taxpayers are less likely to bail out banks in the future.
The ringfences, born out of the independent commission on banking chaired by Sir John Vickers in 2011, need to be in place by 2019, but the HSBC chairman, Douglas Flint, has called on the government for time to make the changes, which the bank has argued will cost millions of pounds.
Flint said on Monday that there was a “growing fatigue” in some of the bank’s operations, where staff were having to work at weekends to implement systems changes, in part caused by the ringfencing rules.
Moody’s said: “We expect the related changes in business models, organisation and funding structure changes to have significant implementation costs over a multi-year period, which, given their early stage of development, have yet to be reflected in banks’ bottom lines”.
The agency, which advises lenders on the creditworthiness of banks, is basing its analysis on whether bondholders, for instance, would need to take losses when banks run into trouble – something that they did not do during the 2008 banking crisis, because the government stepped in to bail out banks.
via The Guardian