Moody’s Places R.B.S. on Review For Downgrade

LONDON - The credit-rating agency Moody’s Investors Service has placed the Royal Bank of Scotland on review for a potential downgrade of its debt ratings.

The agency, a unit of Moody’s Corporation, said it placed R.B.S. on review after the British lender said last month that it would set aside nearly 3 billion pounds, or about $5 billion, to cover potential litigation claims related to mortgage-backed securities and other products sold before the financial crisis.

“As a result, the bank will report a weaker than previously anticipated regulatory capital position at end-December 2013, weakening its standalone credit profile,” Moody’s said in a statement late Wednesday.

R.B.S. is expected to announced its year-end results on Feb. 27. Bailed out in 2008, the bank is 81 percent owned by the British government.

During the review, Moody’s said it would assess whether the bank’s credit fundamentals remain compatible with its current rating. The bank holding company has a long-term debt rating of Baa1, a medium-grade rating that is subject to moderate credit risk.

Moody’s cited the challenges and risks R.B.S. faces in relation to the execution of its ongoing recovery plan and any actions that R.B.S.’s management might pursue in the short term that could mitigate those risks and boost its capital position.

Moody’s said it considers R.B.S.’s recovery plan “clear, credible and positive for its creditors over the medium-term, albeit not immune from execution risk.”

“The rating agency believes that, if adequately executed, the recovery plan will gradually improve the bank’s currently weak asset quality profile, increase its solvency and will eventually restore the bank’s sustainable profitability,” Moody’s said. “However, RBS’s recent announcement demonstrates that its management faces a number of short-term headwinds, which could challenge the implementation of this.”

R.B.S. declined to comment on the move by Moody’s.

Ross McEwan, the R.B.S. chief executive, has said he wants to change the culture of R.B.S., which received £45 billion from the British government during the financial crisis five years ago, and repay the government as quickly as possible.

But he has had to deal with a series of setbacks in recent months as he tries to turn the bank around, including a computer malfunction that left customers unable to use their debit and credit cards for a time during the Christmas shopping season and the abrupt departure of the bank’s chief financial officer after only three months on the job.

Now, R.B.S. is facing billions of pounds in costs from legacy issues that continue to plague the lender.