Lloyds TSB confirmed today that it has offered to buy HBOS in the wake of the downgrade actions seen yesterday. Both Standard & Poor’s and Fitch Ratings took ratings action on various HBOS entities.


S&P lowered the long and short-term counterparty credit ratings on HBOS to ‘A+’/’A-1’ from ‘AA‘/’A-1+’.


Other actions on rated subsidiaries of HBOS included lowering the long-term counterparty credit rating on Bank of Scotland to ‘AA-‘ from ‘AA’. Bank of Scotland’s short-term counterparty credit rating was affirmed at ‘A-1+’.


S&P’s ratings actions reflect its opinion on HBOS’ financial profile and credit risk given the deteriorating operating climate.


Fitch also downgraded HBOS and Bank of Scotland’s long-term Issuer default ratings to ‘AA’ from ‘AA+’ due to limited operating flexibility in the weakening U.K. economy and reliance on wholesale funding.


Royal Bank of Scotland analysts said that the ratings actions do not affect the triggers to the banks securitizations under Permanent Master Issuer, Pendeford or Mound because the triggers have some room.

S&P's outlook for HBOS's ratings is stable and Fitch’s outlook on the long-term issuer default rating is negative.

"As previously stated, the FSA is satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way," U.K. regulator Financial Services Authority said in a statement regarding the merger. "The announcement of the proposed merger with Lloyds TSB is a welcome move as it is likely to enhance stability within financial markets and improve confidence among customers and investors in the UK financial sector."


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