EBS may still need more funds - Fitch

THE RATINGS agency Fitch has said the EBS building society may still need additional capital in view of uncertainty surrounding potential loan losses.

The ratings agency yesterday upgraded the society’s individual rating to ‘D/E’ from ‘F’. It said while the ‘D’ rating acknowledged the building society’s strong retail funding and lending franchises and the prospective €875 million of capital injection from the Government, the ‘E’ element indicated that Fitch considered additional capital may still be required.

The EBS has a funding shortfall of €785 million which the Government has committed to provide until new investment is sourced. The building society is currently in the final stages of a sale process. Four parties are understood to have submitted bids.

The new corporate structure at EBS is likely to see some sort of co-ownership between the Government and the successful bidder, with the new investor expected to take up to a 70 per cent stake.

Fitch also downgraded its rating watch on EBS’s long-term debt to “evolving” from “positive” due to uncertainty over the business model and future ownership of the society, although it said it would reassess the society once the outcome of the sale was known. However, it kept the mutual’s main rating at ‘BBB-’.

A spokesman for the EBS said last night the society’s main grading remained the same and the revision from positive to evolving was expected.

“This is not an unexpected decision for the EBS in the context of the current sales process, and the issues will be dealt with when the sales process is finalised ”

Separately, Fitch yesterday downgraded Irish Nationwide’s subordinated debt, although it affirmed its overall ‘BBB-’ rating.

The ratings agency said the decision to change the INBS long-term Issuer Default rating from positive to stable reflected “the reduced likelihood of the society benefiting from a corporate transaction, such as the negotiations with EBS building society in early 2010”.

It also said it expected INBS to report losses larger than the society’s capital base in 2010 due to the sale of loans to Nama at a loss.