Moody's said it may cut its ratings for Lloyds, given chief executive Antonio Horta-Osorio being on sick leave may hinder the part state-owned British bank's restructuring plan.
Lloyds shocked investors last week when it said 47-year-old Horta-Osorio was taking a break due to stress-related illness, leaving a potential power vacuum at the top of Britain's biggest retail bank.
Moody's said on Wednesday: The review has been prompted by the significant upheaval within Lloyds' senior management.
Finance director Tim Tookey, due to leave the bank in February for insurer Resolution, was named interim CEO, adding to worries that the executive shake-up by Horta-Osorio has left Lloyds thin at the top at a time when it faces several headwinds.
Tookey said Horta-Osorio was still expected back at work before Christmas, but his absence comes at a difficult for the bank, as it works on the disposal of some 630 retail bank branches and a broader strategy review that has entailed some 15,000 job cuts and plans to halve Lloyds' international presence.
Moody's is concerned that the group may face a major challenge in ensuring continuity of leadership, given that the CEO has only been in place since March 2011; and there have been several high-level management changes since his arrival, including the announcement that the current CFO will leave in February 2012, the agency said.
The situation is exacerbated by the fact that it comes at a time of turbulent conditions in the financial markets and the necessity for Lloyds to execute important tasks, including the EU-mandated sale of branches and the ongoing wind-down of non-core assets, it added.
Moody's has an A2 senior debt rating on Lloyds Banking Group.
LLOYDS SEEKS TO REASSURE MOODY'S
Lloyds said it would work with Moody's to reassure the agency over its interim management arrangements and its ability to execute the company's strategy.
We note the rationale for the review of our ratings. Lloyds believes it has acted quickly and appropriately following the request of the CEO, Antonio Horta-Osorio, for a short leave of absence, the bank said in a statement.
We will be working with Moody's to assure them of the efficacy of our interim management arrangements and our ability to deliver on our strategic aims, it added.
On Tuesday, Lloyds slumped to a third-quarter loss of 607 million pounds after its earnings were hit by lower banking margins and higher funding costs. The loss came on top of an interim loss of 3.25 billion pounds.
The government ended up with its Lloyds stake and a holding of 83 percent in Royal Bank of Scotland after rescuing both in 2008 with state bailouts, and in return European regulators ordered RBS and Lloyds to sell off a string of assets.
Lloyds was saddled with billions of pounds of losses after buying troubled rival HBOS at the height of the 2008 crisis, in a deal that was brokered by the Labour government of the time.
Lloyds shares were up 1.9 percent at 29.45 pence in early morning trade, although the stock remains well below the average 63 pence price at which the British taxpayer acquired its stake in the bank.
(Editing by Helen Massy-Beresford)