The agency recorded that arrears levels went up from 1.52 per cent of total loans at the end of 2006 to 2.04 per cent 12 months later; a much higher rate than was predicted for a lender targeting prime customers.
Moody’s claimed that with 80 per cent of its book containing specialist buy-to-let and self-certification deals, while much of this lending was high-quality, these were areas which had not been tested in a difficult market before and the potential for further deterioration was unknown.
Summing up its decision, Moody’s said: “The negative outlook reflects Moody’s view that the bank may need to take further writedowns on its portfolio of structured investments and the negative impact that this may have on its capital, the difficult economic environment in the UK that may lead to a further deterioration in asset quality and the likely effect on profitability of holding extra liquidity and the probable increase in the cost
of funds.”
Despite this the agency claimed the fact that B&B had managed to secure funding through asset sales and higher-than-expected deposit taking in the first two months of 2008 were positive signs for the lender’s immediate future.
A spokesperson for B&B commented: “While we’re disappointed with the downgrade, we believe it will have minimum impact on our business.
“We continue to fund the bank very successfully through strong retail deposits and private
placement.”
