Downgrade for Permanent TSB

Rating agency Moody’s has downgraded the ratings of Permanent TSB (PTSB), reflecting the challenges the bank faces with returning to profitability and funding in the wholesale markets. It expects the bank will report further losses in 2013 with a return to profitability “not yet in sight”.

The bank remains in state ownership following the sale yesterday to Great-West Lifeco of Irish Life, the former life assurance arm of the bankassurance group, Irish Life & Permanent.

Moody's has downgraded the bank's long-term deposit rating to B1 from Ba2, and the unguaranteed senior unsecured debt rating has been downgraded to B3 from Ba3. In addition, the standalone assessment of the bank has been downgraded to b3 from b1. The rating agency has kept a "negative" outlook for the bank.

According to Moody's, the decision reflects "the uncertainty and the risks surrounding the far-reaching restructuring of the bank; the challenges the bank faces to return to profitability; the still significant short-term funding pressure that the bank is under which results in a high reliance on external support and; the still deteriorating asset quality in the Irish residential mortgage book.

The agency did note, that the issues the bank faces are "mitigated to a certain degree" by the bank's relatively high level of capital, as evidenced by the 18.1 per cent Core Tier 1 ratio.

However, it added that it will be "crucial for the bank to demonstrate its ability to improve its underlying profitability (primarily driven by the net interest margin) over the next several quarters to begin to absorb additional costs involved with the cleaning-up of its loan portfolio".

Meanwhile, Fitch Ratings has placed Irish Life's on "Rating Watch Positive", following its acquisition by Canadian life assurer Great-West and the agency's view that new ownership is likely to improve Irish Life's credit profile.

Fitch said that the closure of the sale is likely to lead to an upgrade of Irish Life's ratings.

"The amount of uplift will depend on the strategic importance of Irish Life to Great-West," it said, adding that any change in Ireland's sovereign rating could also change Irish Life's ratings.