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Lloyds TSB undergoes credit rating cut

Lloyds TSB has had its credit rating cut due to concerns about its exposure to problems both at home and abroad.

Moody's announced last night (21 June) its decision to downgrade the major British bank's score by one notch from A1 to A2 and explained this decision has been made on the basis of the lender's "sensitivity" to the challenging environment in the UK and the eurozone.

Another contributory factor to this reduction is the fact Lloyds still frequently uses wholesale funding, which means it is vulnerable to alterations in investor sentiment towards European banks.

The leading ratings agency went on to note that Lloyds has only been cut by one notch due to several mitigating factors, including its strong capital ratios and its proven track record of managing to meet restructuring targets.

"However, the outlook is negative on the A2 debt and deposit ratings, reflecting Moody's medium-term view of lower systemic support for large UK banks," the body added.

By Claire Archer