Moody's downgrades Irish banks to junk

RATING AGENCY Moody’s has downgraded the deposit ratings of five Irish financial institutions to junk status, indicating that Allied Irish Banks, Bank of Ireland, Irish Life Permanent (ILP), EBS and ICS Building Society are now all of “questionable credit quality”.

It follows a similar downgrade by fellow rating agency Standard Poor’s in February of both BoI and AIB, and of ILP in April.

According to Moody’s, the rationale for the move was its decision last Friday to downgrade Irish government bonds by two notches to Baa3 from Baa1, just above junk status, which in turn has reduced the level of systemic support for Irish guaranteed banks.

While this may be another symbolic blow to the Irish banking sector, analysts say it has little actual relevance given the current predicament of Irish banks. Institutions with a junk rating find it more expensive and difficult to raise money on the capital markets, but Irish banks have been precluded from funding in the markets for some time now, and are instead largely dependent on the European Central Bank.

Unguaranteed senior unsecured debt rating was downgraded by one notch, due to uncertainty over whether the Government would, if required, extend support beyond the € 35 billion which has already been committed.

Moody’s also downgraded debt, which is guaranteed under the Government’s eligible liabilities scheme, by two notches, but kept it out of junk-bond status at investment-grade level.

Neither Anglo Irish Bank nor Irish Nationwide was included in the assessment, but Moody’s has kept both institutions on review for a possible downgrade.

* Moody’s is also reviewing the rankings of State-owned energy companies, Bord Gáis and the ESB, which have borrowed money through bond sales to the capital markets. The ratings agencyhas pegged bonds issued by both State companies at Baa1/p-2, which implies a low risk of default. Yesterday, it said it was reviewing both as it left the companies debt ranked two notches above that of its shareholder, the Irish State.