Anglo's credit rating lowered by S&P

ANGLO IRISH Bank has had its credit rating lowered over concerns about the bank’s “weak financial position” and “highly demanding” recovery plan.

International ratings agency Standard & Poor’s (SP) downgraded the nationalised bank saying that without continuing Government support, the bank’s rating would be six notches lower.

“Anglo’s current standalone financial position is, in our view, weak and reliant on funding support from the Irish Central Bank,” said the debt rating agency.

The bank’s long-term rating was lowered to ‘BBB+’ from ‘A-’, while its short-term rating was lowered to A-2 from A-1.

The Government has agreed to recapitalise Anglo with €4 billion after losses of €4.1 billion in the half year to March wiped out the bank’s capital reserves.

“Anglo intends to significantly downsize its asset base to match its funding position with the aim of stabilising its financial profile,” S&P said in a statement.

“Anglo has announced that over time it intends to develop a broader business banking franchise. We consider that this is a highly demanding plan.”

The bank’s executive chairman, Donal O’Connor, said last week that the bank considered “an orderly wind-down” but chose to avoid this option as it would lead to the flight of funding, leaving the Government facing a higher bill.

Mr O’Connor said the State’s capital investment would protect the bank against potential losses of up to €7.5 billion over three years, but warned that losses could run to €11 billion, forcing the bank to seek additional capital.

The bank was placed on negative outlook meaning that it may face a further ratings downgrade, reflecting the uncertainty over “future capital needs, possible state aid implications and business plan executive risks”. S&P said that the pressure on the bank’s rating was mitigated by Government ownership of the bank and “the potential for continued extraordinary support”.

The agency said it considered Anglo “to be of high systemic importance, reflective of the scale of state support”.

Anglo is drafting a new business plan which is expected to refocus the bank on lending to businesses and a move away from property.

The plan will have to be approved by Minister for Finance Brian Lenihan.

The bank is expected to transfer about €17 billion in development loans and a further €10 billion in associated loans to the State’s “bad bank”, the National Asset Management Agency (Nama).