16.02.2012

By Simon Miller

Rating agency Moody's has put 114 European banks on notice for a downgrade following its review of soverign ratings.

Moody's said the notice reflected the combined pressures in Europe and challenges faced by those in the capital markets.

"The actions reflect, to differing degrees, the combined pressures from (i) the adverse and prolonged impact of the euro area crisis, which makes the operating environment very difficult for European banks; (ii) the deteriorating creditworthiness of euro area sovereigns, which led to the adjustment of the ratings for nine European sovereigns on 13 February 2012 and (iii) longer-term, the substantial challenges faced by banks and securities firms with significant capital market activities," said the notice.

It added: "While there are mitigating factors such as the currently supportive stance of many governments towards their banking systems and accommodative monetary policies, these are overshadowed by the aforementioned pressures, in Moody's opinion. Moody's expects that once the reviews announced today are resolved, its EU bank ratings will fully reflect the effects of currently foreseen adverse credit drivers."

The UK saw nine banks affected incuding the top four of Barclays, Lloyds, HSBC and RBS.

Because of continuing fears over Europe, Moody's has also put multiple European covered bonds and insurers under review as well for a possible downgrade.