Lloyds Banking Group was Wednesday warned its debt rating could be cut due to the sick leave of chief executive Antonio Horta-Osorio.
Moody's has placed Lloyds under review for a possible downgrade as a result of "significant upheaval" in its senior management, which it fears may disrupt the company's restructuring plans.
Acting chief executive Tim Tookey, who is due to leave Lloyds in February, is currently in charge after the bank said its Portuguese boss had been signed off on sick leave, possibly until the end of this year.
A credit ratings downgrade would be potentially damaging for Lloyds because it could push up its borrowing costs and weaken investor confidence, analysts said.
Moody's said the situation at Lloyds, which is 40.2-percent owned by the taxpayer, has been exacerbated by current market turmoil.
And the bank is currently grappling with issues that are key to its future, such as the sale of 632 branches imposed by the EU in return for the 20 billion pounds in state aid it received following the 2008 credit crisis.
The credit rating agency, Moody's, pointed out that Horta-Osorio has only been in the post since March and there have been substantial changes to the top management since his arrival, including the departure of Tookey.
A downgrade in Lloyds' credit rating would be a blow to hopes of a speedy recovery for the bank and the return of the money to the Government after its 21 billion pounds bail-out, the analysts added.
The Government bought its stake in the bank for about 63 pence per share, but they were trading at just 29 pence today.
Shares in Lloyds made slight losses today after their four percent gains yesterday following its third-quarter trading update.
The bank reported a 21-percent fall in underlying profits to 644 million pounds in the three months to September 30, after being hit by weaker demand for loans and higher wholesale funding costs.
Lloyds also admitted that some of its medium-term targets may have to be pushed back to beyond 2014, but investors were encouraged by a "significant reduction" in its impairment charge for bad loans. (end) he.hb KUNA 091308 Nov 11NNNN