UPDATE 1-Moody's places UK bank RBS's debt ratings under review
* Move follows UK decision to consider breaking up bank
* Moody's says probability of creditor losses remains low
By Matt Scuffham
LONDON, July 5 (Reuters) - Ratings agency Moody's has placed Royal Bank of Scotland's credit ratings on review for downgrade after Britain's finance ministry said it was considering breaking up the bank.
The government, which holds an 81 percent stake, has appointed Rothschild to examine whether to transfer RBS's remaining toxic loans into a so-called 'bad bank' leaving the 'good bank' better placed to lend.
Moody's said on Friday its decision was in response to the uncertainty for bondholders that resulted from the government's move. It said some of the options being considered by the government could result in losses for creditors.
"The heightened level of uncertainty is likely to remain at least until the publication of the government's conclusion from its assessment, after which Moody's expects to conclude its ratings review," the agency said.
Moody's said, however, that the probability of losses to RBS creditors remained low.
The government said this week that it expected to conclude its review into a possible breakup by the autumn.
Moody's said it had placed on review for downgrade RBS's D+ standalone bank financial strength rating, its A3 long-term debt and deposit ratings and the bank's subordinated debt and junior capital instruments.
Meanwhile, the BBC reported on Friday that the Treasury had received approaches from sovereign wealth funds and private-equity businesses to buy around 10 percent of part-nationalised Lloyds Banking Group.
The Treasury declined to comment on the Lloyds report and the RBS downgrade.