Deposit ratings placed on review for possible downgrade
London, 11 February 2011 -- Moody's Investors Service has downgraded today the unguaranteed
senior unsecured debt ratings of six Irish banks and kept them under review
for further possible downgrade. The deposit ratings of these banks
have also been placed under review for downgrade. The actions follow
recent government statements that call into question the government's
willingness to provide additional support to the banks beyond that which
has already been provided to date, and reflect the increasing risk
of some type of burden-sharing with senior creditors. Moody's
rating actions are summarised as follows:
• The unguaranteed senior unsecured debt ratings of the following
banks have been downgraded: Bank of Ireland (BoI) to Ba1/Not-Prime
from Baa2/P-2; Allied Irish Banks (AIB) to Ba2 from Baa3;
EBS Building Society (EBS) and Irish Life & Permanent (IL&P) to
Ba2/Not-Prime from Baa3/P-3; Anglo Irish Bank (Anglo
Irish) and Irish Nationwide Building Society (INBS) to Caa1 from Ba3.
In addition, the long-term unguaranteed senior unsecured
debt ratings of these banks have been placed on review for further possible
downgrade.
• The bank deposit ratings of these six banks (Baa2/P-2 for
BoI and Baa3/P-3 for AIB, EBS, IL&P, Anglo
Irish and INBS), as well as ICS Building Society (Baa3/P-3),
have been placed on review for possible downgrade.
• The senior unsecured and bank deposit ratings of KBC Bank Ireland
(KBCI) have been downgraded to Baa3/P-3 from Baa2/P-2.
The outlook is negative, in line with that on KBC Bank N.V.
• There is no rating impact on the stand-alone bank financial
strength ratings (BFSRs), subordinated and tier 1 debt ratings,
and government-guaranteed debt ratings; there is also no impact
on the ratings of Bank of Ireland (UK) plc, the UK based subsidiary
of Bank of Ireland.
• Moody's will communicate separately on the impact of these
rating actions on the Covered Bond ratings for AIB Mortgage Bank,
Anglo Irish Bank and Anglo Irish Mortgage Bank, Bank of Ireland
Mortgage Bank, EBS Mortgage Finance, as well as the Mortgage
Backed Promissory Notes ratings for Bank of Ireland Mortgage Bank and
KBC Bank Ireland.
RATING RATIONALE FOR SENIOR DEBT DOWNGRADE AND REVIEW
Moody's rating actions today reflect a reduction in its systemic
support assumptions for the domestic Irish banks. In line with
the Irish government's very supportive policy to date, Moody's
has until now assumed a high degree of systemic support for the banks'
senior unsecured debt and deposits, as a result of which the corresponding
ratings have enjoyed three to four notches of uplift from the standalone
ratings. Irish governmental policy has included debt guarantees,
capital support (including the up to EUR10 billion as announced with the
EU/IMF support package), and the establishment of the National Asset
Management Agency (NAMA) to acquire the land and development loans from
five domestic banking institutions. In addition, as a further
part of the EU/IMF support package, a EUR25 billion contingency
fund was established to further support the banks.
Nevertheless, this supportive policy has been brought into question
over the past days, in statements from both the leading opposition
party and the incumbent finance minister. While some of these statements
may reflect the current pre-election debate, Moody's
is increasingly concerned that they represent a growing underlying threat
for senior creditors from two directions. First, Moody's
notes that the Irish government's willingness to provide support
beyond what has been committed to date has become far less certain and
more difficult to predict, resulting in a significant lowering of
our support assumptions for all domestic Irish banks, and the subsequent
downgrades of the unguaranteed senior unsecured debt ratings. The
announcement late on Wednesday in which the current government decided
to postpone the previously agreed capital increases to after the general
election adds to these concerns.
Second, given the huge fiscal burden faced by Irish taxpayers as
a direct result of problems in the banking sector and banks' subsequent
bailout by the government, in Moody's view there is an increasing
risk that this burden could be shared not only by subordinated creditors,
but by senior creditors, most likely through distressed exchanges.
As a result, Moody's has placed the unguaranteed senior unsecured
debt ratings of the domestic banks on review for possible downgrade,
in order to assess the new government's stance towards senior creditors.
Should the risk for senior creditors increase significantly, the
banks' unguaranteed senior unsecured debt ratings would likely face
further multi-notch downgrades.
Commenting on the lower support assumptions, Moody's stated
that the four institutions viewed as going concerns by the authorities
-- AIB, BoI, EBS, and IL&P -- now benefit
from one notch of systemic support uplift from their standalone ratings
(currently mapped to Ba2 for BoI and Ba3 for the other three institutions),
resulting in unguaranteed senior unsecured debt ratings of Ba1 for BoI
and Ba2 for AIB, EBS, and IL&P. Moody's continues
to view these four institutions as more systemically important for the
Irish government, as evidenced by the substantial support they have
received over the past two years. The ratings also incorporate
the support provided through the EU/IMF package, as well as the
apparent pressure at the European level to continue supporting senior
debt obligations for fear of contagion beyond Ireland. However,
in the case of Anglo Irish and INBS, Moody's has now withdrawn
all its assumptions of systemic support from the banks' unguaranteed
senior unsecured debt ratings, leading to a downgrade to Caa1 from
Ba3. This reflects the much lower systemic importance of these
two institutions, reflected in this week's decision to commence
the auction of their deposits and wind down of their remaining assets
over the longer term.
REVIEW FOR POSSIBLE DOWNGRADE ON DEPOSIT RATINGS
The review for possible downgrade of the deposit ratings (currently Baa2/P-2
at BoI and Baa3/P-3 at AIB, Anglo Irish, EBS,
IL&P, ICS and INBS) will focus on potential support for this
creditor class under a new government and whether this is higher than
that for senior unsecured debt. The Baa3/P-3 deposit ratings
of Anglo Irish and INBS reflect the recent announcement that the deposits
of the two institutions are to be sold to other banks in the system,
the lowest of which are now rated Baa3/P-3 (and are on review for
possible downgrade).
DOWNGRADE OF KBC BANK IRELAND
As a result of the reducing support for the banking system, Moody's
has removed the assumption of systemic support that was incorporated into
the ratings of KBCI. As a result, the bank's senior
debt and deposit ratings have been downgraded to Baa3/P-3 from
Baa2/P-2. At the Baa3 rating level, this continues
to incorporate a very high level of support from the bank's parent,
Belgium's KBC Bank N.V., resulting in three
notches of uplift from the bank's D- BFSR (mapped to Ba3
on the long-term scale). The rating outlook is negative,
in line with the negative outlook on KBC Bank N.V.
OTHER BANKS ARE UNAFFECTED BY TODAY'S ACTIONS
The ratings of the other Irish banks are unaffected by today's rating
actions, as any rating uplift in their deposit and senior debt ratings
stems not from an assumption of government support but from parental support.
These banks include Ulster Bank Ireland (A2, negative; D-/Ba3
negative); Zurich Bank (A1, review for possible upgrade;
D-/Ba3 negative); and Hewlett Packard International Bank (A2,
stable; C-/Baa1 stable).
TODAY'S BANK RATING ACTIONS ARE AS FOLLOWS:
• Allied Irish Banks: Long-term senior unsecured debt
rating downgraded to Ba2 from Baa3 and placed on review for possible downgrade;
Baa3/P-3 bank deposit ratings placed on review for possible downgrade.
• Anglo Irish Bank: Long-term senior unsecured debt
ratings downgraded to Caa1 from Ba3 and placed on review for possible
downgrade; Baa3/P-3 bank deposit ratings placed on review
for possible downgrade.
• Bank of Ireland: Senior unsecured debt ratings downgraded
to Ba1/Not-Prime from Baa2/P-2 and placed on review for
possible downgrade; Baa2/P-2 bank deposit ratings placed on
review for possible downgrade.
• EBS Building Society: Senior unsecured debt ratings downgraded
to Ba2/Not-Prime from Baa3/P-3 and placed on review for
possible downgrade; Baa3/P-3 bank deposit ratings placed on
review for possible downgrade.
• Irish Life & Permanent: Senior unsecured debt ratings
downgraded to Ba2/Not-Prime from Baa3/P-3 and placed on
review for possible downgrade; Baa3/P-3 bank deposit ratings
placed on review for possible downgrade.
• ICS Building Society: Baa3/P-3 bank deposit ratings
placed on review for possible downgrade.
• Irish Nationwide Building Society: Long-term senior
unsecured debt ratings downgraded to Caa1 from Ba3 and placed on review
for possible downgrade; Baa3/P-3 bank deposit ratings placed
on review for possible downgrade.
• KBC Bank Ireland: Long-term senior unsecured debt
ratings and bank deposit ratings downgraded to Baa3/P-3 from Baa2/P-2.
The outlook on these ratings remains negative.
The principal methodologies used in these rating actions were "Bank
Financial Strength Ratings: Global Methodology" (February
2007) and "Incorporation of Joint-Default Analysis into Moody's
Bank Ratings: A Refined Methodology" (March 2007).
REGULATORY DISCLOSURES
Information sources used to prepare the credit ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuers or obligations satisfactory for the purposes of maintaining
credit ratings.
The ratings have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Ross Abercromby
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Johannes Wassenberg
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades unguaranteed senior unsecured debt of Irish banks
