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Fitch cuts ratings on European banks

October 13, 2011

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LONDON—Concerns that governments are less likely to come to the rescue of financial institutions prompted Fitch credit ratings agency to downgrade its outlook for Britain's Royal Bank of Scotland Group PLC, Lloyds Banking Group and Swiss lender UBS AG on Thursday.

Fitch also said it is reviewing the ratings of a host of European lenders, citing ongoing exposure to sovereign-debt in peripheral Europe and sluggish economic growth prospects. The costs of additional bank regulation and political pressure to reduce state support for banks continue to pose challenges to lenders, Fitch said.

Fitch is the second major credit rating agency in less than a week to slash its ratings of Royal Bank of Scotland and Lloyds. Last week, Moody's cut its ratings on the two U.K. banks for the same reason.

"The banking system is not only very large relative to the U.K. economy, but there is also more advanced political will to reduce the implicit support for the country's banks," Fitch said in a statement explaining its downgrade of the British lenders.

It lowered its long-term ratings for the two large bailed-out banks by two notches to A from AA-.

The credit rating agency dropped Swiss lender UBS one notch to A from A+ and Germany's Landesbank one notch to A+ from AA-.

The moves follow similar actions taken against Italian lenders

Fitch also put Barclays on notice for a possible downgrade, but the British arms of HSBC PLC and Spain's Banco Santander SA were unaffected.

France's BNP Paribas and Societe Generale were also put on negative ratings watches, along with Credit Suisse, Deutsche Bank and Rabobank.

U.S.-based Morgan Stanley and Goldman Sachs rounded out the banks put on negative ratings watch.

Fitch said it expects to make a decision on possible ratings downgrades "within a short time frame and take corresponding rating actions where warranted."