Moody's Downgrades Irish Banks on Election Worries

Friday, 11 Feb 2011 07:42 AM

 

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Ratings agency Moody's downgraded the creditworthiness of six Irish banks on Friday as politicians nearing a national election argued about when, or whether, the banks will get a further capital injection.

Moody's Investors Service cited doubts over whether the banks will get a new cash infusion which was due at the end of the month. The current government has put off the issue until after the Feb. 25 election, and the opposition parties most likely to form the next government oppose further aid for banks.

Ratings for the banks' unguaranteed senior unsecured debt were cut to junk status for Bank of Ireland, Allied Irish Banks, EBS Building Society and Irish Life & Permanent. The long-term unguaranteed senior unsecured debt of Anglo Irish Bank and Irish Nationwide Building Society, already rated as junk, were downgraded further.

Finance Minister Brian Lenihan announced on Wednesday that the government would not be putting up to 10 billion euros ($13.6 billion) into the banks before the election, saying that the outgoing government no longer had a mandate to do so. However, Lenihan said he would advance the cash if the leaders of the Fine Gael and Labor parties — which are favored to form the next government — would formally request that the money be committed.

Fine Gael and Labor both say they intend to renegotiate terms of the 67.5 billion euro ($92 billion) bailout the government received from the European Central Bank and International Monetary Fund last year.

Although there are questions about whether the bailout can be renegotiated, Moody's said the political jousting had raised questions about whether an Irish government would continue to support the banking industry.

"Moody's notes that the Irish government's willingness to provide support beyond what has been committed to date has become far less certain and more difficult to predict, resulting in a significant lowering of our support assumptions for all domestic Irish banks, and the subsequent downgrades of the unguaranteed senior unsecured debt ratings," the ratings agency said.

"The announcement late on Wednesday in which the current government decided to postpone the previously agreed capital increases to after the general election adds to these concerns."

Moody's cut Bank of Ireland from Baa2/P-2 to Ba1/Not-Prime; Allied Irish Bank from Baa3, the lowest investment grade rating, to Ba2; EBS Building Society and Irish Life & Permanent from Baa3/P-3 to Ba2/Not-Prime.

Anglo Irish Bank, which on Tuesday reported an Irish record full-year loss of 17.6 billion euros, and Irish Nationwide Building Society were cut from Ba3 to Caa1.

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