SHARES IN Irish Life & Permanent (IL&P) fell 12.8 per cent after the company’s debt ratings were downgraded by international credit rating agency, Moody’s.

The rating was cut from the top AAA-rating – an indication of financial strength and a company’s ability to repay its borrowings – to A1. This will mean the company will have to pay investors higher interest for funding as it is regarded as a slightly higher risk.

IL&P closed at €1.26, valuing the company at €348 million.

Moody’s said the downgrade reflected the view that the rapid deterioration in the Irish economy was likely to have a negative effect on profits in ILP’s banking and life assurance divisions.

IL&P’s bank, Permanent TSB, accounts for one-third of earnings.

Moody’s said it expected an increase in loan losses within the bank, “albeit at lower levels than peers due to the make-up of the loan portfolio which is overwhelmingly residential mortgage based”.

“Profitability in the life assurance business is also likely to be lower, particularly on the retail side, as sales volumes are lower and management fees reduce.”

The agency cited the ongoing high reliance on market funding as a key factor in the downgrade of the bank’s financial strength.

Moody’s also highlighted the bank’s relatively high exposure to buy-to-let lending, which accounts for 36 per cent of the ILP’s total loan portfolio of €41 billion.

The IL&P downgrade came as a trade union representing half the company’s 5,000 employees wrote to senior executives saying they had lost confidence in chairwoman Gillian Bowler and outgoing chief executive Denis Casey, who is remaining on at the company until a successor is found.

Mr Casey bowed to growing pressure last Friday and resigned after the board initially declined to accept his resignation over the €7 billion deposit transfers between IL&P and Anglo Irish Bank. He resigned after finance director Peter Fitzpatrick and head of treasury David Gantly stepped down last Thursday.

Staff at IL&P were briefed by management yesterday about the events at the company over the last 10 days at a series of meetings held around the country. IL&P’s spokesman said the briefings were “standard communications procedure” and had been arranged at the request of management.

The Unite union wrote to IL&P saying the job security of its members had been compromised by the delay in Mr Casey’s resignation, which focused “enormous negative attention” on the firm.

IL&P responded with a letter, saying said the board has “full confidence” in Ms Bowler and that she had the board’s “full support”.

It has emerged that the Department of Finance asked the company to allow an Anglo bond sale to proceed ahead of its planned raising of funds last December as part of the choreographed series of bond issues by the six guaranteed Irish-owned lenders.

The department had originally placed IL&P third, ahead of Anglo Irish, in the queue of bond sales.

However, it moved the sale of IL&P’s guaranteed bond to allow Anglo to raise funding ahead of the bank’s annual results on December 3rd, at which it showed a surge in projected loan losses.

Anglo raised €1.5 billion in its bond sale, while IL&P raised €1 billion this month, but paid a higher cost as bond markets became more difficult since December.

The department was unable to comment on this issue yesterday.