MOODY'S DOWNGRADE THE TOO-CLOSE-FOR-COMFORT "BROTHERS" FOR 'SEEPING' EXPOSURE TO UK ECONOMY

MOODY'S DOWNGRADE THE TOO-CLOSE-FOR-COMFORT "BROTHERS" FOR 'SEEPING' EXPOSURE TO UK ECONOMY

Hannah Smith | Investment Week | 19 July 2012 | 11:02

Moody’s has downgraded the credit rating of financial services group Close Brothers, pointing to the rapid growth of its loan book and its exposure to the flagging UK economy.

Close has seen its bank deposit rating downgraded from A2/P-1 to A3/P-2, while its standalone credit profile has been lowered from a2 to a3.

Its senior unsecured debt and long-term issuer ratings have been downgraded to Baa1 from A3, and the ratings agency has placed the firm on a negative outlook.

“The downgrade primarily reflects the high loan growth that the bank has recorded in recent years,” Moody’s said in a statement.

“The downgrade also reflects the bank's exposure to any further deterioration in the UK economy, especially given its focus on lending to SMEs.

"Moody's generally views high loan growth rates as a cause for concern given the potentially negative impact that this can have on asset quality and on the funding profile.”

However it added much of Close’s loan book is short term, so it has little exposure to pre-2009 lending, and also has high lending margins which provide a cushion against higher provision costs.

Moody's also noted the bank has taken steps towards improving its risk management processes and structure.