Tyler Durden
Standard & Poors slams the U.K. in yet another preview of the imminent downgrade. The just released report has some of the harshest language from the rating agency on the island nation to date:
Standard & Poor's Ratings Services no longer classifies the United Kingdom (AAA/Negative/A-1+) among the most stable and low-risk banking systems globally due to our view of the country's weak economic environment, the reputational damage we believe has been experienced by the banking industry, and what we see as the high dependence on state-support programs of a significant proportion of the industry.
And because S&P, due to a chronic case of testicular lack of fortitude, will be the last to actually notch the United Kingdom, what it has done is to downgrade the country in its Banking Industry Country Risk Assessment group.
We therefore place the U.K.'s banking system in Group 3 out of our 10 Banking Industry Country Risk Assessment (BICRA) groups, which primarily reflects our view of relatively high leverage in the U.K. economy and the losses the industry could bear during the deleveraging process. BICRA rankings integrate our view of the strengths and weaknesses of a country's banking system compared with those of other countries, ranging from Group 1 (strongest) to Group 10 (weakest). Banking systems ranking similarly to the U.K. also include the U.S., Austria, Chile, and Portugal. The macroeconomic and banking industrywide factors that affect the BICRA influence all bank counterparty credit ratings in the U.K.
In our opinion, the weak U.K. economy will continue to hinder the credit profile of the U.K. banking industry. We believe this factor affects the profile of the U.K. banking system more than it influences the banking systems of most other major mature market economies in Europe and around the world, notably Canada, France, and Germany in BICRA Groups 1 and 2. Household debt in particular is high, relative to disposable income. We expect that systemwide domestic nonperforming and impaired loans will peak in 2010 and remain elevated through 2011. In our opinion, credit demand in the U.K. will remain muted, and banks' net interest margin will continue to be narrow due to the low interest rate environment. The U.K. banking industry will, in our view, have limited opportunity in 2010 and 2011 to increase earnings to absorb high credit loss charges.
S&P: "We No Longer Classify The U.K. Among The Most Stable And Low-Risk Banking Systems"
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