S&P cuts Northern Rock on liquidity woes
( Reuters ) - Standard & Poor's on Wednesday cut its ratings on British mortgage lender Northern Rock Plc. citing "diminished business position as a result of its recent liquidity stress."
Shares in the embattled British bank Northern Rock tumbled 20 percent to a record low on Wednesday as speculation mounted that potential buyers are not interested or will only pitch a cut-price bid.
Northern Rock is Britain's fifth-biggest mortgage lender. It is seen as a probable takeover target since being engulfed by a funding and customer confidence crisis on Friday but may struggle to attract a suitor given damage to its brand, tough capital markets and the stated aims of potential buyers to diversify away from UK mortgages, industry sources said.
"Since it will be extremely difficult for Northern Rock to rebuild its franchise, we expect that it will effectively begin to wind down in an orderly manner if it is not acquired in the near future," S&P said in a statement.
The ratings agency added that an acquisition is likely, though not certain.
S&P cut Northern Rock's counterparty credit rating one notch to "A-minus" the seventh-highest investment grade, from "A." The outlook is negative, meaning an additional cut is likely over the next two years.
"The new long-term counterparty credit rating takes into consideration the extraordinary support provided to Northern Rock by the U.K. authorities in the form of substantial liquidity and, if necessary, a government guarantee of existing deposits," S&P added.