No-one escapes the European Commission
Fitch just delivered some pretty hefty downgrades on subordinated debt sold by Lloyds Banking Group’s insurance arms Clerical Medical and Scottish Widows.
The rating cuts follow similar downgrades on debt issued by the group’s banking units last week. Once again, the cause for the downgrades is the European Commission’s renewed zeal for banks that have received state aid to share the pain with their investors, notably by deferring coupons on subordinated debt.
The seven and eight notch cuts take the bonds from high investment-grade to low-junk (B+). Not pleasant.
It’s starting to look more than likely that Lloyds and RBS will have to defer subordinated bond coupons. The question is for how long?