Moody’s Investors Services' downgrade of twelve U.K. financial institutions could indirectly support U.K. RMBS, according to Deutsche Bank analysts.
Moody's cut the senior debt and deposit ratings of 12 British lenders, including Royal Bank of Scotland and Lloyds Banking Group, on the back of an assumption of lower government support.
Lloyds TSB Bank, Santander U.K. and Co-Operative Bank had their ratings lowered one notch. RBS and Nationwide Building Society were cut two notches.
While the sovereign downgrades of Spain and Italy has placed certain bonds with low credit enhancement at risk, the U.K downgrades support the RMBS market because it effectively lowers the ratings cushion at which covered bonds would lose their triple-A rating.
"For example RBS, Nationwide and Clydesdale would require just a 2-notch downgrade from today’s rating levels in order for vanilla covered bond issuance ratings to be impacted," explained Deutsche Bank analysts.