Barclays, RBS and Lloyds swept up by S&P's string of downgrades

Barclays, Lloyds, HSBC and Royal Bank of Scotland (RBS) have come under pressure as a new rating model is introduced at Standard & Poor's (S&P), sparking a string of credit downgrades across the sector.

The rating agency has reduced its credit ratings on 15 large banking companies, mostly in Europe and the US, as a sweeping overhaul of its analysis process saw the introduction of a new model that considers funding risks and gives more weight to economic headwinds.

Barclays, HSBC Holdings, Lloyds and RBS were downgraded by one notch each.  JP Morgan Chase & Co, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley  and UBS also had their ratings cut.

The downgrade by one notch represents a third of a letter, S&P explained.

The downgrades were issued after the market had closed on Tuesday evening but come at a time when the financial sector already faces huge strain.  Moreover, for RBS the downgrade was issued on the same day as it received a €1.9 million penalty after a credit default swap (CDS) mistake.

The downgrades mean that Lloyds and RBS are now rated A- by S&P, that Barclays is rated A and HSBC A+.