Concludes review initiated 24 May 2011

London, 07 October 2011 -- Moody's Investors Service has today downgraded the senior debt and deposit ratings of 12 UK financial institutions and confirmed the ratings of 1 institution. This concludes its review of systemic support assumptions from the UK government for these institutions initiated on 24 May 2011.

The downgrades have been caused by Moody's reassessment of the support environment in the UK which has resulted in the removal of systemic support for 7 smaller institutions and the reduction of systemic support by one to three notches for 5 larger, more systemically important financial institutions. According to Moody's, announcements made, as well as actions already taken by UK authorities have significantly reduced the predictability of support over the medium to long-term. Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift. However, it is more likely now to allow smaller institutions to fail if they become financially troubled. The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government.

In addition, the rating agency has assigned a negative outlook to the senior debt and deposit ratings of the banks that still incorporate two or more notches of systemic support, to reflect the likelihood of a further reduction in the availability of systemic support over the medium to long term.

The rating actions include a one-notch downgrade of Lloyds TSB Bank plc (to A1 from Aa3), Santander UK plc (to A1 from Aa3), Co-Operative Bank plc (to A3 from A2), a two-notch downgrade of RBS plc (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of 7 smaller building societies. The ratings of Clydesdale Bank were confirmed at A2 (negative outlook). As outlined in the May press release, we have reviewed the standalone ratings of all entities prior to concluding on the debt ratings. A separate announcement today covers the upgrade of the standalone rating of Co-Operative Bank to C- (mapping to Baa1 on the long-term debt scale) from D+ and earlier announcements cover the upgrades of the standalone ratings of Santander UK, Nationwide, Yorkshire, and Principality Building Societies.

A detailed summary of the rating actions and the current levels of systemic support for UK financial institutions is available here http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_136526. Separate announcements will follow on entities included in the May 24th review, but not concluded in this action: this includes certain subsidiaries of RBS and Lloyds, as well as Bank of Ireland (UK).

RATINGS RATIONALE

LEVELS OF SYSTEMIC SUPPORT: UK FINANCIAL INSTITUTIONS FALL INTO THREE GROUPS

Moody's reassessment assumes a decrease in the probability that the UK government would provide future support to financial institutions if needed. This follows ongoing guidance from the UK Tripartite authorities (the Bank of England, the Financial Services Authority and the Treasury) that the government is more likely in the future to make greater use of its resolution tools to allow burden sharing with senior bondholders. "Therefore, Moody's has lowered the amount of support it incorporates into the institutions' ratings to reflect the overall weakening support environment," adds Rudman.

The rating downgrades position the ratings of UK financial institutions into three groups:

Banks with a very high likelihood of support: two to three notches of systemic uplift.

This group includes the four large clearing banks, which have large market shares of loans and deposits, a significant share of the clearing system and also (in the case of RBS, Barclays and HSBC) have complex large cross-border trading and derivative books . The notches of support uplift have been reduced (i) to three from four for Lloyds; and (ii) to three from five for RBS. There is no change to the ratings of Barclays and HSBC, which maintain the existing levels of three and two notches of rating uplift, respectively.

Banks with a moderate or high likelihood of support: one notch of systemic uplift.

This group consists of Nationwide, Santander UK, Co-operative Bank and Clydesdale Bank. These institutions have nationwide networks and a smaller, but still important, role in the payments system. Nationwide and Santander have large market shares of nationwide deposits and loans, which places them in the category of "high" likelihood of support. However, the simpler business model of all these institutions means they are relatively "more straightforward" to resolve and therefore support is limited to one notch.

Institutions with a low or no likelihood of support: no systemic uplift.

This group consists of the smaller rated building societies. Those affected by today's rating action are Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire. Moody's considers that there is insufficient certainty surrounding the likelihood and extent of support available over the medium-term to the senior creditors of rated building societies smaller than Nationwide, which all have very small nationwide market shares. Therefore, there is no rating uplift incorporated for systemic support from their respective standalone credit strength ratings.

STANDALONE FINANCIAL STRENGTH

The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government. In fact, the standalone ratings of 5 institutions have been upgraded in separate announcements made today (Co-Operative Bank) and over the past few months (Nationwide, Santander UK, Yorkshire, and Principality ). These institutions are primarily those that have seen some improvement in their credit profile in the past 12 months and where we have also concluded that the institution is unlikely to be directly affected by any further material deterioration in the European financial markets -- primarily, smaller, domestically-focused institutions with limited reliance on wholesale funding.

However, these improvements in standalone financial strength have not been sufficient to offset all of the downward rating pressure from lower systemic support.

REGULATORY ASPECTS

The UK Tripartite authorities (the Bank of England, the Financial Services Authority and the Treasury) have provided ongoing guidance that banks that fail in the future should not expect capital injections from the public purse.

Moody's still incorporates some rating uplift into the ratings of large and medium-sized institutions due to the greater challenges the authorities would face in enabling the smooth resolution of these entities. However, Moody's considers that the likelihood of small financial institutions receiving capital injections in case of need is sufficiently uncertain to lead us to remove any systemic uplift from the ratings of these institutions.

Recent steps towards enabling the resolution of failed banks -- without access to the public purse -- include the FSA's publication in August of a consultation paper on Recovery and Resolution Plans (RRPs), together with a discussion paper on resolution. In addition, even though the September proposals of the Independent Commission on Banking (ICB) do not have an immediate rating impact on UK banks, they are credit-negative for bondholders longer-term as they indicate that new structures, such as ring-fencing, could be introduced to aid resolution and allow senior bondholders to share the burden of bank failure. Nevertheless, we recognise that the authorities do not yet have all the necessary tools to effect the orderly resolution particularly of the largest, most complex banks, and many of the measures being considered (RRPs, ring-fencing) could take years to implement. Consequently, we still incorporate a very high level of support in the ratings of the largest banks and moderate level of support in the ratings of medium-sized banks.

WHAT COULD CHANGE THE RATINGS

Those ratings that continue to benefit from systemic support remain sensitive to any further changes in Moody's support assumptions or the credit quality of the UK government (rated Aaa with a stable outlook). All of the ratings are subject to changes of these banks standalone financial strength ratings. Please refer to www.moodys.com for a more detailed discussion of each institution's credit profile.

THE METHODOLOGY USED

The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology, published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Elisabeth Rudman

Senior Vice President

Financial Institutions Group

Moody's Investors Service Ltd.

One Canada Square

Canary Wharf

London E14 5FA

United Kingdom

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Johannes Wassenberg

MD - Banking

Financial Institutions Group

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SUBSCRIBERS: 44 20 7772 5454



Releasing Office:

Moody's Investors Service Ltd.

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Moody's downgrades 12 UK financial institutions, concluding review of systemic support