FIRST National Building Society's £51 million acquisition of The Mortgage Corporation in Britain has led to a downgrading of the society's financial strength by international rating agency Moody's.

But the building society's managing director, Mr John Smyth, last night rejected Moody's conclusions.

"We are confident that we will extract good profits out of the UK mortgage business. There is a good future for a centralised First National mortgage lender in the UK. In fact we are so confident that we are close to completing a small but strategic acquisition of more mortgage business in that market," he said.

Mr Smyth rejected Moody's assertion that the acquisition will dilute the building society's core franchise. "If this is not our core franchise I do not know what is," he said.

Moody's questioned the "true long term added value" to First National of owning a large scale centralised mortgage lender in Britain in the light of the competitiveness of the market. The debt rating agency reduced First National's long term bank deposit rating by one point to A3 from A2, its short term deposit rating to Prime-2 from Prime-1 and its financial strength rating to C from C+.

Moody's analyst Mr Alan Reid said that one of his concerns was that a much higher proportion of First National's mortgage book was now outside its core Irish market. "That changes the profile of the institution", he said.

A much higher proportion of its lending is now in the British market which he described as highly competitive and oversupplied. In addition he said he was "unclear" what First National would be able to do with The Mortgage Corporation which has not been an active lender since 1993 and had asset quality problems before that.

Mr Smyth argued that Moody's had not questioned First National's ability to absorb its largest ever acquisition, but had questioning its strategy of moving into the British mortgage market.

Arguing that the lower ratings were "still good in relation to our peer group in Britain", Mr Smyth maintained the downgrading would have no major impact on the society's ability to raise funds.