S&P still may cut Lloyds

Standard & Poor's said it Lloyds TSB Bank plc's AA long-term counterparty credit rating is still on CreditWatch with negative implications, where it had been placed on Sept. 18, following the announcement of its agreed acquisition of HBOS plc. The A-1+ short-term counterparty credit rating was affirmed.

"We view the acquisition as positive for the combined entity in terms of its business position. Notably, the merged entity will have comfortably the nation's largest branch network and will be one of the world's largest retail banks, in terms of income," S&P analyst Nick Hill said in a statement.

"At the same time, we see LTSB's asset quality as being diluted by HBOS' much larger balance sheet. Moreover, the challenge of reducing HBOS' wholesale funding requirement and ultimately lengthening its term profile - while more manageable in the context of the combined group - will remain considerable in the current environment," Hill added.

The merger of such large and overlapping institutions introduces a material new element of risk in the integration of the institutions, the agency added.

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