It's all to do with banks

S&P affirmed its 'AA-/A-1+' counterparty credit ratings on Barclays Bank Plc following the announcement of the bank's substantial increase in first-half profit. Nevertheless, the outlook on the ratings remains negative, reflecting recessionary conditions in several of Barclays' key markets, and its legacy credit market exposures pose downside risks to credit loss expectations.

Barclays reported pre-tax profits of £2.8 billion, excluding losses on revaluation of its own debt of £0.9 billion, and a £1.1 billion gain on the exchange of perpetual tier two instruments for dated tier two instruments. This compares to a £1.9 billion profit, similarly adjusted, in the first half of 2008.

It was the contribution from Barclays Capital, significantly enlarged following the acquisition of Lehman Brothers' US operations in the second half of 2008, combined with high transaction volumes and wider spreads, which drove group results.
However, S&P warned that unexpectedly large losses arising from Barclays' exposure to capital markets could result in a downgrade, along with any sustained shift toward the contribution of investment banking to group profitability.

ANZ had the 'Aa1/P-1' and 'B' counterparty and bank financial strength ratings assigned by Moody's affirmed following the announcement of its agreement to acquire various Asian businesses from the Royal Bank of Scotland. But the outlook on the ratings remains negative in the face of challenging operating conditions in its major markets.

Moody's noted that ANZ's capital adequacy will remain well positioned for its rating, with a pro-forma post-acquisition tier one ratio of 9.5 per cent under APRA definitions, or approximately 11.4 per cent under UK FSA methodology. This remains higher than the bank's position at March 2009, when its APRA Tier 1 ratio was 8.2 per cent.

Fitch also affirmed the 'AA-/Stable/F1+' and 'B' issuer default and individual ratings that it assigns to the ANZ.

ABN Amro Bank NV had its long-term and bank financial strength ratings lowered by Moody's to 'Aa3' and 'C+' from 'Aa2' and 'B-' respectively, and left on review for further possible downgrade. The rating action reflected Moody's view that the current ratings were no longer consistent with either the bank's current financial condition or its likely future financial profile.

Later this year, ABN Amro will transfer a portion of its deposits and rated debt to a newly formed Dutch bank, which will acquire the existing name. The remainder of deposits and debt will be held in the existing bank, which will be renamed The Royal Bank of Scotland NV.

Moody's is of the view that neither bank will support ratings higher than those currently assigned. The ratings will remain on review pending the completion of the demerger and Moody's review of the financial profile and capitalisation of each entity. Moody's is of the view that the long-term rating finally assigned to RBS NV could well be lower.

At the same time the bank's subordinated debt rating was lowered to 'A1' from 'Aa3' and left on review for further possible downgrade: in this case, possibly by multiple notches.  ABN Amro NV has A$1.0 billion of senior debt maturing in march 2010 and A$750 of subordinated debt maturing in May 2013 on issue in the domestic market.

S&P lowered its ratings on the lower tier  two subordinated debt of various UK banks and building societies following a change in rating methodology. Some domestic bond issues are affected by the change, with HBOS Plc having A$600 million of lower tier two debt, maturing in May 2012, outstanding and Royal Bank of Scotland Plc having A$900 million and A$1.0 billion of such debt maturing in February 2012 and October 2014, respectively.

With several UK financial institutions being compelled by the UK government to suspend coupon payments on lower tier two debt, S&P now rates such debt issued by financially healthy UK financial institutions two notches below senior counterparty credit ratings and in the case of those financial institutions receiving or potentially likely to receive extraordinary government support, the rating differential is now three or more notches.

For HBOS and RBS the differential is now four notches.