Moody’s has placed on review for downgrade Lloyds TSB Bank and Lloyds Banking Group because of what it described as upheaval within Lloyds’ senior management in relation to chief executive António Horta-Osório taking a temporary leave of absence. Lloyds responded by saying that it had acted appropriately and would seek to reassure Moody’s.

Moody’s rates Lloyds TSB Bank A, with a bank financial strength rating of C-, and Lloyds Banking Group A2.

“Moody’s is concerned that the group may face a major challenge in ensuring continuity of leadership, given that (i) the CEO has only been in place since March 2011; and (ii) there have been several high level management changes since his arrival, including the announcement that the current CFO will leave in February 2012,” the rating agency said today (Wednesday).

Lloyds last Wednesday (2 November) announced that Horta-Osório (pictured) is taking a temporary leave of absence on health grounds and that he will be replaced on an interim basis by chief financial officer Tim Tookey. Tookey is due to leave the banking group in February 2012 to join Friends Life.

Lloyds said in a statement today that it notes the rationale for Moody’s review of its ratings.

“Lloyds believes it has acted quickly and appropriately following the request of the CEO, António Horta-Osório, for a short leave of absence,” it said. “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.

“The group has continued to make good progress on reducing risk, improving its funding profile and strengthening its balance sheet. As we highlighted in our Q3 2011 management statement, the resilience of our underlying trading performance highlights the progress we are making as well as the strength and flexibility of our strategy and the confidence in our management’s ability to execute it.”

Moody’s said that turbulent conditions in the financial markets exacerbate the situation and the necessity for Lloyds to execute important tasks, including an EU-mandated sale of branches and the ongoing wind-down of non-core assets.

Moody’s review will focus on the Lloyds board’s ability to quickly regain stability within the senior management team and the efficacy of any new senior leadership agreements.