Ratings agency Fitch has downgraded its outlook ratings for four UK banks from stable to negative, increasing calls for councils to diversify their investments.
Last week, Fitch adjusted its opinion on the long-term prospects for Lloyds Banking Group plc, Lloyds Bank plc, HBOS plc and Bank of Scotland plc.
It said that although support for the banks from the UK authorities was still likely because of their systemic importance, the ratings reflect the fact that this support may weaken as legislation evolves.
The government and European Union are both pursuing laws which would restrict the ability of governments to bail out banks in any future financial crisis.
Frederic Barthelemy, head of corporate client development UK & Ireland at Amundi Asset Management told Room151: “The issue for treasurers will be finding a big enough range of counterparties to invest their money with, to diversify effectively.”
Mark Horsfield, director at treasury adviser Arlingclose, said that he was confident most of his clients’ latest treasury management strategies, which came into effect this week, had been formulated in the knowledge that they should avoid an over-concentration of counterparty risk.
He said: “We have been flagging this risk for the best part of 12 months and I think it has sunk in with our clients.”
Jonathan Hunt, director of corporate finance and investment for the Tri-borough (Westminster, Kensington & Chelsea and Hammersmith & Fulham councils) said: “The majority of our investments are in market based instruments such as shorter bonds. I have deliberately diversified away from banks in the past three years. But this is not just to do with the risk of bail-in. If we have the ability to do it and get a better rate elsewhere then it is sensible to do so.”
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Fitch downgrades UK banks as treasurers look to spread risk
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