Ratings of non-cumulative Tier 1 securities downgraded
London, 04 June 2009 -- Moody's Investors Service has today taken the following rating action
on Irish Banks:
(1) It has downgraded the ratings of Anglo Irish Bank (Anglo) to A3/Prime-1/E
from A2/Prime-1/E+
(2) It has placed the long-term bank deposit and senior debt ratings
of Allied Irish Banks plc (AIB, rated Aa3), Bank of Ireland
(BoI, Aa3), Irish Life & Permanent (IL&P, A1)
and ICS Building Society (ICS, A1) on review for possible downgrade.
(3) It has downgraded or placed on review for downgrade various junior
debt securities of Allied Irish Bank, Anglo Irish Bank, Bank
of Ireland, EBS Building Society (EBS) and IL&P.
The downgrade of Anglo Irish Bank's ratings reflect Moody's
concerns on the serious challenges faced by the bank as indicated by a
significant capital erosion and a liquidity position highly reliant on
central bank support. Furthermore, Moody's believes
that significant restructuring will be necessary for the bank to develop
a viable business model again.
"The review of the debt and deposit ratings of AIB, BoI, ICS
and IL&P will look at the extent to which Ireland's ability to provide
support to its banking system may be impacted by the weakening of the
government's own debt capacity (which is under review for possible downgrade)
as a result of the ongoing global economic and credit crisis," says
Ross Abercromby, a Moody's Vice President / Senior Analyst and lead
analyst at Moody's for the Irish banks. Moody's notes that
the review is not expected to lead to more than a one, possibly
two, notch change in the debt and deposit ratings of the institutions
under review. The rating agency expects to conclude this review
on the bank's ratings following the conclusion of the review of
the Irish government bond rating (see "Moody's places Ireland's
ratings on review for possible downgrade" published on April 17,
2009).
The downgrade of both the non-cumulative preferred shares and the
cumulative junior subordinated debt at these banks incorporates Moody's
view that the risk for potential losses has heightened, stemming
from coupon deferrals due to the potential for protracted losses at these
banks, but also due to an increased risk of EU approval for the
state aid being contingent on burden sharing among these junior securities.
DOWNGRADE OF ANGLO IRISH BANK
The long-term bank deposit and senior debt rating of Anglo Irish
Bank (Anglo) has been downgraded to A3 (with a negative outlook) from
A2 (negative), the dated subordinated debt is downgraded to Baa1
(negative) and the BFSR is downgraded to E (mapping to a Baseline Credit
Assessment of Caa1) from E+ (BCA: B2). These rating
actions follow the release of the bank's results for the half-year
to end-March 2009. In this period the bank recorded a loss
of EUR4.1 billion as a result of a greatly increased provisioning
charge, year on year. The loss has the effect of all but
wiping out the bank's equity, and at end-March the
reported tier 1 ratio was 3.9% and the total capital ratio
8.2%. Moody's notes that these ratios include
substantial regulatory forbearance.
Moody's has also taken into consideration that the Irish Government
has announced that it will, subject to EU approval, provide
up to €4 bn of capital to the bank. However the rating agency
would expect that the capitalisation of the bank is likely to remain very
weak, without further ongoing support from the Irish government,
as losses are likely to continue to rise given the challenging economic
conditions in Ireland and the bank's very high and concentrated
exposure to the commercial property market. Also reflected in the
action is that the bank will participate in the National Asset Management
Agency, or NAMA (the government's vehicle to acquire development
and investment-related real estate assets from banks) and is expected
to transfer a substantial amount of assets. Depending on the value
of the assets which will be transferred, this could also lead to
a further capital requirement.
The BFSR of E reflects Moody's view that the bank will require ongoing
support from the Irish government to absorb any remaining risks in the
balance sheet; also continuing government support is likely to be
required to give the bank sufficient flexibility to restructure and establish
a viable business model again.
Incorporating this weak intrinsic credit profile as indicated by the BFSR
of E, the downgrade of the debt and deposit ratings to A3 continues
to reflect the 100% state ownership and very high probability of
systemic support. The difference to the government's own debt rating
stems from Moody's expectation that the bank will not be in permanent
public ownership and the resulting greater uncertainty for senior unsecured
bondholders as compared to investors in government debt.
The Prime-1 short-term rating of Anglo has been affirmed.
Commenting on this Moody's said that, in most cases, an A3
long-term rating results in a Prime-2 short-term
rating. "However we believe the Prime-1 rating is
appropriate because under conditions of strong systemic ownership and
support, including a liquidity facility with the Central Bank of
Ireland, short-term ratings are the most predictable and
assurance of payment of short-term obligations is the highest,"
explained Abercromby.
The negative outlook on the A3 long-term bank deposit and senior
debt ratings reflects the uncertainties in Moody's view around the yet
to be implemented new business plan and its viability, which will
still need to be demonstrated.
Moody's has also downgraded Anglo's Tier 1 securities reflecting
the lower BFSR and Moody's expectation that the bank will be challenged
to return to profitability in the medium term which increases the possibility
of coupons being deferred. Importantly as discussed previously
Moody's notes that as well as EU approval for NAMA, Anglo
also requires EU approval for the business plan it is currently developing.
As a result of these factors as well as Moody's view that the bank may
be placed into a run-off situation the Tier 1 securities have been
downgraded as below:
Anglo Irish Bank:
- Cumulative Tier 1 hybrids downgraded to Caa1 (neg) from B3 (neg)
- Non-cumulative preferred shares and hybrids downgraded
to Caa3 (neg) from Caa1 (neg)
LONG TERM BANK DEPOSIT AND SENIOR DEBT RATINGS PLACED ON REVIEW FOR DOWNGRADE
IN LINE WITH THE REVIEW ON THE IRISH GOVERNMENT BOND RATING
At present the deposit and debt ratings of Allied Irish Bank, Bank
of Ireland, its subsidiary ICS, and IL&P incorporate substantial
systemic support leading to the senior ratings benefiting from between
seven and eight notches of systemic support.
"As such, Moody's will be reassessing the level of systemic
support for the banks listed above to determine whether the systemic support
they receive will be affected by the review for possible downgrade on
the Irish government's Aaa bond rating" says Abercromby
During the global crisis the Irish government has introduced a number
of measures to support the country's banking system. These
measures include the raising of the size of deposits guaranteed by the
deposit guarantee fund to €100,000 from €20,000,
the establishment of a two year blanket guarantee for deposits,
senior debt, covered bonds and dated subordinated debt of seven
institutions (Allied Irish Banks, Bank of Ireland, Anglo-Irish
Bank, Irish Life & Permanent, EBS Building Society and
Irish Nationwide Building Society, as well as the unrated Postbank,
a joint venture between An Post and Fortis) and the injection of €3.5
billion in non-cumulative preference shares into the two largest
banks, Bank of Ireland and Allied Irish Banks. The government
has also announced that it will restructure the guarantee to enable the
banks to issue debt with a term of up to 5 years.
These measures have been implemented as a result of the severe stress
that the Irish banking system is now exposed to, as the value of
commercial and residential property continues to decline, and the
economic conditions in the country remain very challenging with GDP forecasted
to fall substantially in 2009 and unemployment expected to continue to
rise.
Moody's notes that the review is not expected to lead to more than a one,
possibly two, notch change in the debt and deposit ratings of the
institutions under review. The rating agency expects to conclude
this review on the bank's ratings following the conclusion of the
review of the Irish government bond rating (see "Moody's places
Ireland's ratings on review for possible downgrade" published on
April 17, 2009).
For more information, see Moody's recent report "Financial Crisis
More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa
Countries" available on www.moodys.com.
IRISH BANK'S JUNIOR SECURITIES
The junior securities of the following banks have been downgraded or placed
on review for possible downgrade:
Allied Irish Banks and Bank of Ireland:
- Dated subordinated debt placed on review for possible downgrade
- Cumulative junior subordinated debt downgraded to Baa2 (on review
for possible downgrade) from A2 (neg)
- Non-cumulative preference shares and hybrids downgraded
to B3 (neg) from B1 (developing)
- The cumulative Tier 1 hybrids have been affirmed at B1,
the outlook is changed to negative from developing
EBS Building Society:
- Non-cumulative preference shares and hybrids downgraded
to B3 (neg) from B1 (developing)
Irish Life & Permanent:
- Dated subordinated debt placed on review for possible downgrade
- Cumulative junior subordinated debt downgraded to Baa3 (on review
for possible downgrade) from A3 (neg)
The dated subordinated debt of AIB, BoI and IL&P has been placed
on review for possible downgrade, in line with the review on the
senior debt ratings. Moody's continues to notch dated subordinated
debt of the Irish banks one notch below the senior debt rating reflecting
the current Irish government guarantee on dated subordinated debt (for
the six rated institutions covered under the guarantee) and our view that
the Irish authorities do not have the tools available to impose losses
on dated subordinated debt outside of a liquidation scenario.
Moody's has downgraded the junior subordinated debt instruments
at AIB and BoI to Baa2 (on review for possible downgrade) and at IL&P
to Baa3 (on review for possible downgrade). This reflects their
junior priority of claim to dated subordinated debt and the optional deferral
feature. The review for possible downgrade is in line with the
review on the senior debt ratings.
The downgrades of the tier 1 instruments reflects Moody's concern
that (i) the EU authorities' approval of NAMA could be contingent upon
the suspension of coupons on these instruments; and (ii) Moody's
expectation of the banks remaining loss-making in the near-to-medium
term increases the possibility of coupons being missed.
The B3 rating of the non-cumulative preference shares of AIB,
BoI and EBS is based on an expected-loss approach and reflects
the rating agency's assumption of a high probability of the omission of
coupons and high loss severity over a two-year period. The
rating agency's assumption is that EU requirements could lead to the banks
exercising their right for optional deferral on these instruments.
The outlook for the securities is negative reflecting that given the difficult
economic conditions in Ireland and also the potential that the establishment
of NAMA may lead to a further capital requirement and therefore a possible
omission of coupons for a period of longer than two years cannot be ruled
out.
The cumulative preference shares / hybrids (with cumulative deferral and
non-cash settlement through ACSM) of AIB and BoI remain rated B1.
These securities have largely the same features as junior subordinated
debt on a going concern basis, but have a preferred claim in liquidation.
Under a going concern assumption, the expected loss for investors
in these cumulative instruments should therefore be clearly lower than
for the non-cumulative preference shares. However,
given their categorisation as Tier 1 instruments by the regulators we
are concerned that the risk of coupon deferral is higher than for junior
subordinated debt.
PREVIOUS RATING ACTION AND PRINCIPAL METHODOLOGIES
The last rating action on AIB was on April 21, 2009 when the senior
debt guaranteed by the Irish government was placed on review for possible
downgrade.
The last rating action on Anglo was on April 21, 2009 when the senior
debt guaranteed by the Irish government was placed on review for possible
downgrade.
The last rating action on BoI was on April 21, 2009 when the senior
debt guaranteed by the Irish government was placed on review for possible
downgrade.
The last rating action on EBS was on April 21, 2009 when the senior
debt guaranteed by the Irish government was placed on review for possible
downgrade.
The last rating action on ICS was on April 21, 2009 when the BFSR
was downgraded to D with a developing outlook. The long-term
bank deposit rating was affirmed at A1 with a negative outlook at the
same time.
The last rating action on IL&P was on April 21, 2009 when the
senior debt guaranteed by the Irish government was placed on review for
possible downgrade.
The principal methodologies used in rating these banks 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), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
The detailed ratings and actions are listed below:
Allied Irish Banks plc:
• Long-term bank deposit and senior debt ratings of Aa3 and
the A1 dated subordinated debt rating placed on review for possible downgrade
• Short-term bank deposit and debt rating of Prime-1
is unaffected.
• Undated junior subordinated debt rating downgraded to Baa2 (on
review for possible downgrade) from A2 (negative outlook).
• Cumulative Tier 1 hybrids unchanged at B1 (outlook changed to negative
from developing)
• Non-cumulative preferred shares and hybrids downgraded to
B3 (negative outlook) from B1 (developing outlook)
• Bank financial strength rating of D is unaffected and carries a
developing outlook.
Anglo Irish Bank Corporation Ltd:
• Long-term bank deposit and senior debt ratings downgrade
to A3 (negative outlook) from A2 (negative outlook) and the dated subordinated
debt is downgraded to Baa1 (negative outlook) from A3 (negative outlook).
• Short-term bank deposit and debt rating of Prime-1
is affirmed.
• Undated junior subordinated debt rating unchanged at B3 (negative
outlook).
• Cumulative Tier 1 hybrids downgraded to Caa1 (negative outlook)
from B3 (negative outlook).
• Non-cumulative preferred shares and hybrids downgraded to
Caa3 (negative outlook) from Caa1 (negative outlook)
• Bank financial strength rating downgraded to E (stable outlook)
from E+ (developing outlook).
Bank of Ireland:
• Long-term bank deposit and senior debt ratings of Aa3 and
the A1 dated subordinated debt rating placed on review for possible downgrade
• Short-term bank deposit and debt rating of Prime-1
is unaffected.
• Undated junior subordinated debt rating downgraded to Baa2 (on
review for possible downgrade) from A2 (negative outlook).
• Cumulative Tier 1 hybrids unchanged at B1 (outlook changed to negative
from developing)
• Non-cumulative preferred shares and hybrids downgraded to
B3 (negative outlook) from B1 (developing outlook)
• Bank financial strength rating of D is unaffected and carries a
developing outlook.
EBS Building Society:
• Long-term bank deposit and senior debt ratings of A2 are
unaffected
• Short-term bank deposit and debt rating of Prime-1
is unaffected.
• Non-cumulative preferred shares and hybrids downgraded to
B3 (negative outlook) from B1 (developing outlook)
• Bank financial strength rating of D is unaffected and carries a
developing outlook.
ICS Building Society:
• Long-term bank deposit rating of A1 placed on review for
possible downgrade.
• Short-term bank deposit rating of Prime-1 is unaffected.
• Bank financial strength rating of D is unaffected and carries a
developing outlook.
Irish Life & Permanent:
• Long-term bank deposit and senior debt ratings of A1 and
the A2 dated subordinated debt rating placed on review for possible downgrade
• Short-term bank deposit and debt rating of Prime-1
is unaffected.
• Undated junior subordinated debt rating downgraded to Baa3 (on
review for possible downgrade) from A3 (negative outlook).
• Bank financial strength rating of D is unaffected and carries a
negative outlook.
All of the banks are headquartered in Dublin, Ireland.
London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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
Moody's announces several rating actions on Irish Banks
