Santander UK credit rating downgraded by Moody’s

Last week the ratings agency Moody’s downgraded the credit rating of 16 Spanish banks.  This included Santander.  The UK arm of Santander was downgraded to A2.  This is one level higher than the Spanish parent bank.  
The reasons given by Moody’s for the cut include adverse operating conditions, and the Spanish government’s reduced ability to provide support to the banks.  
As Greece becomes subject to more speculation that it will leave the Euro, there are fears that Spain would be among the first casualties of the resulting fall-out.  
In a statement Santander commented:
“Santander UK plc operates under a subsidiary model, which means we are self-sufficient and operate on a standalone basis.  Our funding, liquidity and capital is managed in the UK independently from our Spanish parent company.  Santander UK remains firmly focused on the UK with around 90 per cent of the balance sheet UK-related, with the non UK elements of our balance sheet related largely to US liquid assets.  Our exposure to Europe amounts to less than 1 per cent of our total assets.”
Despite the downgrading, most commentators believe that Santander UK is in a stable financial position and is not threatened by the current difficulties in the Eurozone.  Santander UK is regulated by the FSA and would have access to Bank of England emergency funds in the unlikely case that it needed to.  
The result of the credit rating cut may be that it becomes more difficult for those trying to get a mortgage as it leads to an increased cost of lending and so lending criteria is tightened.  However, with the economic situation as it is at the moment, this could be an issue with all UK banks.  In recent months the interest rates on mortgages have risen as banks have funding conditions in Europe have tightened.  
Although speculation over the possibility of Greece exiting the Euro is already making waves in the economic credibility of other banking systems, at the moment the UK situation is looking stable, and more likely to be able to weather the crisis.  Despite this, the fears are affecting availability of credit, and therefore the ease of obtaining and cost of mortgages.  
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