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Date: Tuesday 07 Oct 2008

LONDON (ShareCast) - Royal Bank of Scotland has had its credit ratings cut by ratings agency Standard & Poor’s because of fears over its credit profile.

S&P chopped its long-term and short-term counterparty credit ratings on RBS to “+/A-1” from “A-/A-1+”. The cut will make it more expensive for RBS to raise money in the corporate bond markets, although this is not a pressing issue at the moment as the market for new corporate bond issues is effectively moribund.

“The rating actions reflect our expectation that RBS’ financial profile may continue to weaken,” said S&P credit analyst, Nigel Greenwood.

The agency said that despite raising £12bn in a rights issue earlier this year, RBS is still relatively undercapitalised.

The viewpoint correlates with market rumours on Tuesday that the chief executive officer of Royal Bank of Scotland, Sir Fred Goodwin, has been in discussions with the UK government about the possibility of a capital injection from the tax-payer.

S&P has not ruled out the possibility of further ratings cuts for RBS, depending, among other things, with how well the integration of ABN-Amro goes.

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