Newcastle Building Society Credit Rating

Following the Newcastle Building Societies recent downgrading they have issued the following information:

You may have seen reports/articles in the press/media talking about Newcastle Building Society being downgraded. First and foremost we would like to point out that this has affected a significant number of banks and building societies who are rated by Moody’s, the particular rating agency which has issued the announcement. It is not just Newcastle Building Society who has been affected; Moody’s has downgraded a number of others. Furthermore the downgrade does not reflect anything specific about the Newcastle and is more a reflection of the fact that we are operating in a fierce recession.

Finally we should point out that these ratings are intended for use by wholesale investors and Newcastle Building Society, which is strongly funded with more than 70% coming from retail depositors, is far less reliant on wholesale investors than many other organisations. Indeed the FSA recently commented (in its Financial Risk Outlook) that building societies had been less weakened than large banks because they were less exposed to wholesale funding and other complex financial instruments. Retail investors should not be concerned by this. The Newcastle remains a safe place to save money.

Key points:

• This is a sector-wide downgrade and fundamentally Newcastle Building Society maintains its relative position in the sector; there is nothing particularly specific to Newcastle Building Society
• Newcastle Building Society remains investment grade
• Building Societies are not immune to the effects of recession; however it is disappointing that Moody’s does not appear to have differentiated between small banks and building societies

April 15th, 2009