Standard and Poor’s takes Clydesdale off negative credit watch

Credit rating agency Standard and Poor’s has taken Glasgow-based Clydesdale and its sister Yorkshire Bank off negative credit watch following the newly-independent bank’s demerger from its Australian owner last week.

S&P had paced the Glasgow-based lender on CreditWatch with negative implications in May pending the banks being spun off by National Australia Bank.

The agency said the newly formed challenger bank, which is being traded as ‘CYBG’, would enjoy lasting benefits from the work NAB completed to prepare for the demerger, including the placing of an indemnity of up to £1.7bn to cover potential misconduct liabilities in respect of issues such as the mis-selling of Payment Protection Insurance by Clydesdale.

In a statement, S&P said: “In our view, this indemnity package with NAB significantly reduces downside risks to the bank’s capital position arising from future legacy conduct charges, which had previously been a key rating concern.”

The agency also noted Clydesdale’s financial and risk profiles will continue to be underpinned by post-transaction support agreements with NAB.

However, S&P’s assessment came as fellow ratings agency Fitch downgraded Clydesdale’s long term rating a notch to reflect the fact it will not be able to draw on extraordinary support from NAB.

It assigned a grading to Clydesdale applied to businesses considered to be of good credit quality.

Fitch said: “The bank’s underlying profitability is modest and will be impinged further for the next two years by investment and restructuring costs.”

The assessment echoes ratings agency Moody’s which last week said Clydesdale faced headwinds in improving its cost structure and restoring profitability to a solid footing.

Standard and Poor’s gave Clydesdale Bank a BBB+ long term rating and A-2 short term rating. A long term rating applies to a period of two years or longer.

A BBB- rating is investment grade.

Fitch reduced Clydesdale’s Long Term Issuer default rating to BBB+, with a stable outlook, from A.

Standard & Poor’s assigned speculative, sub investment grade ratings of BB and B respectively to two tranches of loan notes issues by CYBG, totalling £475m and £450m respectively.