04 March 2014

FT: S&P says new bank bail-in plans could lead to downgrades for European lenders

Standard & Poor's has said that the introduction of new 'recovery and resolution' rules – under which banks will be rescued by bondholder 'bail-ins' rather than state bailouts – would negatively affect its ratings on major European lenders.

Banks could ultimately have their ratings cut by one or two notches depending on their ability to adapt to the legal reforms going through various jurisdictions, the agency explained. S&P said it was conducting a review of bank ratings that is due to be completed by the end of April, after which some banks may put on a negative outlook.

S&P said it was responding in part to the looming introduction of the EU’s Bank Recovery and Resolution Directive, which is likely to be approved by the European Parliament later this year. “The urgency of these reforms varies by country, but we see those that suffered most during the recent financial crisis – the US and western Europe – at the forefront", said S&P. S&P noted that the UK and Switzerland had taken a “proactive stance” to prevent taxpayers bailing out failing banks in the future, and that the new EU directive was another “important milestone”.

The S&P report did not single out any banks for possible downgrades. However, it said that, of the top 100 banks globally, more than 35 benefited from a two-notch rating uplift because of government support – with another 30 enjoying a one-notch boost. A handful of other lenders benefited from rating uplifts of between three and six notches. 

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