LONDON Feb 12 Ratings agency Moody's has placed Royal Bank of Scotland's credit ratings on review for downgrade, citing concerns over the part-nationalised lender's capital strength.
RBS, 81 percent-owned by Britain's government, said in January it was taking billions of pounds in extra charges to cover the cost of past misconduct, sending it deep into the red.
Moody's said it would assess whether RBS's current ratings are appropriate given the risks and challenges in implementing its recovery plan, pending litigation and regulatory probes, and any action the bank can take to mitigate those risks.
The move is a blow to new RBS Chief Executive Ross McEwan who is looking to turn around the fortunes of the bank, which was the subject of a 45 billion pound ($74 billion) government rescue in 2008. He wants to speed up the wind-down of the bank's riskiest assets and sell off its U.S. business Citizens.
"RBS's recent announcement demonstrates that its management faces a number of short-term headwinds, which could challenge the implementation of this plan and in turn be negative for its creditors," Moody's said in a statement on Wednesday.
RBS has set aside 3.1 billion pounds more to deal with past issues, including 1.9 billion to deal with claims relating to possible mis-selling of U.S. home loans.
The bank said in January it expected to report a core Tier I ratio - a gauge of a bank's financial strength - of between 8.1 and 8.5 percent at the end of 2013 under full Basel III capital rules, below most rivals.
McEwan is due to announce the results of a strategic review alongside the bank's 2013 results later this month.