On Friday 22nd May 2009, Fitch ratings agency announced a number of rate changes for building societies. Five societies, including YBS, were downgraded. Of the five, YBS is the only one to remain in the single ‘A’ rated category with our outlook also increased from negative to stable. Following this action, YBS remains in the single ‘A’ category and investment grade with a stable outlook, recognising the Society’s strong funding and liquidity position and robust capital position.
On Tuesday 14 April 2009 Moody's Rating Agency announced a review of UK mortgage lender ratings which incorporate a number of downgrade actions, including YBS.
The questions below provide more information on the downgrade actions and should help you respond to member queries.
The reviews reflect rating agencies expectation that the current economic crisis in the UK, and globally, will lead to significantly higher credit losses than they had previously anticipated.
The Moody’s analysis is based on deeply pessimistic views, for example their base case scenario for house prices is a peak to trough reduction of 40%, and a worst case based on a 60% reduction. This compares to Nationwide Building Society house price data showing a peak to trough decline of less than 20%, with the rate of decline now falling.
At this stage in the economic cycle, downgrades to financial institutions are expected. However the extent to which Moody's have downgraded some financial institutions is surprising. It is possible that previous questions about the credibility of ratings agencies (they rated Icelandic banks very highly just before their collapse) has led Moody's to over-compensate with their latest, very cautious, ratings.
Ratings are intended for the attention of wholesale investors and are not directly relevant to retail savers. Rating agencies assess the strength and stability of financial institutions. YBS is one of only two building societies rated by all three ratings agencies (Moody's, Standard & Poors' and Fitch), the other being Nationwide.
Yes. YBS has one of the strongest capital positions of any major UK financial institution, and has not needed to raise additional capital from the government. Our capital position is stronger than all the re-capitalised banks after their re-capitalisation. In addition to capital strength, YBS has a high level of high quality liquid assets, a good quality UK mortgage book and strong retail savings.
Savings in building societies also have the security of all deposits being protected by the Financial Services Compensation Scheme (FSCS) up to £50k for each account holder in each institution, £100k for joint accounts.
YBS also has formal confirmation from HM Treasury's Debt Management Office that we have sufficient capital to utilise the government credit guarantee scheme. The conditions that have to be satisfied to achieve this cover not only ensure the Society has adequate post stress testing capital, but also robust funding, credible business plans and sound management. The downgrading actions do not affect Society's participation in this scheme.
YBS is the UK's second largest building society with assets of £30bn and 178 branches. We are one of the most cost-effective building societies with one of the lowest management expense ratios in the sector.
The rating agencies state that exposure to certain areas of the mortgage market, such as commercial, buy-to-let and specialist lending, are of concern. YBS has one of the strongest capital positions in the industry and we have never purchased mortgage books from third party lenders. In addition the average loan to value of the Society's mortgage book is just 50% and our mortgage arrears levels are below the industry average. Our downgrades therefore largely reflect the current economic environment of rising unemployment and falling house prices.
As mentioned above, YBS is one of only two building societies rated by all three ratings agencies (Moody's, Standard & Poors' and Fitch), along with Nationwide. Despite the recent downgrades, overall YBS remains one of the strongest building societies, reflecting the inherent strength of our business.
Ratings are intended for the attention of wholesale investors, smaller societies raise insufficient wholesale money to make the process worthwhile.
The impact is marginal, being that societies may have to pay more for wholesale funding, however the majority of funding for building societies is from retail deposits.
It should also be noted that whilst some of the downgrade actions are very extreme, and there are media reports suggesting that "some societies are near junk bond status", all rated building societies' deposit ratings remain investment grade, which means they are still ranked as a safe place for funds to be invested.
No. The sector as a whole, and YBS in particular, has weathered the recent financial turbulence well.
It should be noted that the Moody's analysis is based on overly pessimistic house price scenarios and as the majority of lending by building societies is prime residential mortgage loans this has been reflected in extremely cautious rating reviews.
Very little, we do not know the identity of the whistleblower or the circumstances in which he left the FSA. Nor do we know how senior he was (it has been suggested in media reports that he was below head of department level ie relatively junior) or how close he was to the decision making process.
It is possible that the individual was a disaffected member of staff who now holds a grudge against the FSA.
We would not wish to comment on the accuracy, or otherwise, of the contents of the letter. We note that the criticisms levied at building societies concern those who had diversified their business to include commercial lending and lending generated from the purchase of loan books generated by third party lenders. YBS has always taken a prudent approach to lending and did not enter either of these mortgage markets.
There are articles in the press suggesting that a number of downgraded building societies, including YBS, are in “crisis” funding talks with the Bank of England. Subsequently one society has announced that it is planning to talk to the Bank of England this week as it may need to refinance its borrowings from the Special Liquidity Scheme (SLS) – a scheme provided by the Bank of England to assist lenders to fund their mortgage books.
YBS can categorically confirm that we not in any talks with the Bank of England and we do not need to refinance any drawings made under the SLS.
29 May 2009
Updated: 24 May 2010
Yorkshire Building Society is one of the largest building societies in the UK. We offer a range of financial products and services including: savings & investment accounts, insurance products, loans, mortgages and more.
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Yorkshire Building Society is authorised and regulated by the Financial Services Authority (FSA).
