Moody's downgrades Irish bank debt

Rating agency Moody’s has downgraded the Government-guaranteed debt ratings of five Irish financial institutions to junk status…

Rating agency Moody’s has downgraded the Government-guaranteed debt ratings of five Irish financial institutions to junk status, indicating that Allied Irish Banks, Bank of Ireland, Anglo Irish, Irish Life Permanent (ILP), and EBS Building Society now all carried a ”negative outlook”.

It follows Moody’s downgrade of Irish Government debt to junk status on Tuesday evening.

The agency said today it had downgraded to Ba1 with a negative outlook from Baa3 the government-guaranteed debt of the five lenders.

According to Moody’s, the rationale for the move was to bring the debt in line with the downgrade of the Irish Government bond rating.

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The other ratings of the five banks - including the bank deposit ratings, the senior unsecured debt ratings and the stand-alone bank financial strength ratings - are unaffected by this rating action, Moody’s said.

“As a result of the high level of uncertainty around whether the Irish Government would extend further support to the banking sector if required - beyond the €35 billion already committed to as part of the EU-IMF support package - Moody’s no longer incorporates systemic support into the senior unsecured debt ratings, and these are placed at the same level as the stand-alone ratings of the banks,” it said.

Moody’s also warned if the credit risk for unguaranteed senior unsecured debt was to increase - either because of further economic decline or because of policy changes implying a greater willingness to impose losses on bondholders - then the banks’ unguaranteed senior unsecured debt ratings would likely face further downgrades.

The European Commission yesterday criticised the “incomprehensible” decision by Moody’s to downgrade Irish debt to “junk” status.

The agency said on Tuesday that measures being contemplated by Europe for Greece had increased the chance that Ireland would default on its debts.

“[The] decision by Moody’s to downgrade Ireland’s credit rating is in the president’s view incomprehensible, and in the commission’s view of course,” the official spokeswoman for European Commission president José Manuel Barroso said.

The spokeswoman said the timing of the announcement, with the EU-IMF’s latest quarterly review mission preparing to announce its findings, was, “to say the least, questionable”.

Irish and European authorities had hoped that Moody’s would not follow through on an earlier warning that it would further downgrade Irish debt.