Fitch hits RBS with double downgrade

The unwelcome news for the state-owned bank follows a similar blow for fellow Scottish lender Clydesdale, which had its downgrade announced last week by the same agency.

Fitch cut its credit rating for Edinburgh-based RBS by two notches, saying that the still 80 per cent taxpayer-owned bank’s profits are under “significant pressure”.

RBS, which has not made a profit since it was bailed out in 2008, had its rating cut from “A” to “BBB+”.

However Fitch upgraded Lloyds, and praised the bank, which was also bailed out in 2008, for its financial health.

Other major high street names HSBC and Barclays were left with their ratings intact.

However, Fitch warned about the impact on RBS of misconduct fines, including a mortgage-backed security (RMBS) settlement expected this year that could cost the bank up to $10bn.

RBS is still going through a painful restructuring process as it shrinks its investment bank and carves out challenger bank Williams & Glyn, which was a condition of its bailout under European orders.

Fitch said: “Profitability - the group’s main weakness - remains under significant pressure from high restructuring costs (reducing the scale and scope of its corporate and investment banking business; separating the W&G branches; preparing for the implementation of a UK ring-fenced bank, and implementing its transformation and simplification programme) and because of further large conduct and litigation costs (notably US RMBS-related) the bank faces.”

The agency added: “These are likely to continue to generate large losses in 2015 and/or 2016, dependent on when they occur.”

In response, RBS said: “The rationale for downgrading these ratings is not RBS-specific. Instead it relates to Fitch’s review of sovereign support for banks globally.

“Fitch believes legislative, regulatory and policy initiatives have substantially reduced the likelihood of sovereign support for senior creditors of UK banks, in line with developments at the EU level.”

Lloyds, meanwhile, which has recently been allowed to pay a dividend for the first time since it was bailed out during the crisis, was upgraded from “A” to “A+”.

“The group’s funding profile and liquidity remain healthy. Operating profitability has risen on the back of higher margins and low impairment charges,” Fitch said.

Lloyds said: “Fitch’s upgrade of Lloyds Banking Group reflects the successful implementation of a three-year strategy to transform the group into a simple, low-risk and well-capitalised bank. This was further demonstrated by the group’s recent first-quarter results, which confirmed further improvements in underlying profitability and balance sheet strength, and also the resumption of dividend payments.”

Barclays’ rating was kept at “A”, and HSBC’s at “AA-“, with all the ratings classed as “stable”, meaning they are unlikely to change soon.