State body challenges S&P's Irish downgrade

THE NATIONAL Treasury Management Agency (NTMA) yesterday took the unusual step of trying to dampen concerns over the Republic’s fiscal stability by publicly criticising rating agency Standard Poor’s (S&P) one-notch downgrade of Ireland.

Describing the methodology behind the downgrade as “flawed”, NTMA chief executive John Corrigan said the rating agency’s decision not to attribute any value to National Asset Management Agency (Nama) loans was “not a realistic approach in our view”.

“Exceptionally, we’ve taken issue to the rating agency. There comes a point when the analysis is not robust, Mr Corrigan said in an interview with RTÉ.

The S&P downgrade came on the back of the projected cost in bailing out the Irish banking sector, with the rating agency revising upwards its estimated cost of recapitalisations to the Irish Government to € 45-€ 50 billion. Of this, up to € 35 billion could be spent bailing out Anglo Irish Bank “over time”, due to asset deterioration, while SP also said that “similar developments could take place at some other Irish banks”.

However, Mr Corrigan responded by saying S&P’s estimate of the cost of repairing the banking system was “at the extreme end of any analyst’s comment”.

While it wasn’t apparent yesterday that the markets had responded favourably to Mr Corrigan’s assertions – the spread on the yield of Irish bonds compared to German bonds reached a new high of 344 basis points – market analysts nonetheless came out in favour of the highly respected debt management agency’s stance.

David Schnautz, an interest-rate strategist at Commerzbank in London, said he felt “more in the camp of the NTMA”, and that he sympathised to some extent with the NTMA.

While he acknowledged the need to reassess the Government’s credit risk, he described S&P’s decision to treat Nama loans wholly as debt as a view he didn’t share. “Hopefully it will get something back,” he said.

Oliver Mangan, chief bond economist with AIB Global Treasury, also argued Nama loans were “worth something, not worth nothing” and that there was no harm in the NTMA making its displeasure known.

Investors across Europe were also positive on the outlook for Irish bonds. Lothar Mentel, chief investment officer at Octopus Investments, told Bloomberg News he was more a “buyer than a seller” of Irish bonds, and he criticised the rating agencies for being “overly cautious” following their poor track record in rating securities leading up to the credit crunch.

Fine Gael finance spokesman Michael Noonan described the downgrade as a “hammer blow to the economy”, and blamed it on the Government’s “failed banking policy”.

“In particular, confidence is being undermined due to uncertainty over the final cost of the bank rescue.” He called on Minister for Finance Brian Lenihan to “give certainty to the markets” by putting a final figure on the cost of the bank rescue.

S&P has the most aggressive stance on Ireland, reflecting its concerns of the cost of supporting the banking sector, but its view is at odds with that of its counterpart Moody’s, which on Monday published a report reiterating its “stable” outlook for Ireland.