London, 21 July 2010 -- Moody's Investors Service has downgraded the long-term debt and
deposit ratings of two Irish institutions -- EBS Building
Society (EBS) and Irish Life & Permanent plc (IL&P) --
to A3 from A2 following the one-notch downgrade of the Irish government's
sovereign debt ratings on July 19, 2010 to Aa2 with a stable outlook,
from Aa1. At the same time, Moody's downgraded to Aa2
from Aa1 the government-guaranteed debt of the two institutions,
as well as that of the other four guaranteed institutions: Allied
Irish Banks (AIB), Bank of Ireland (BoI), Anglo Irish Bank
(Anglo Irish), and Irish Nationwide Building Society (INBS).
The non-guaranteed ratings of other banks based in Ireland were
unaffected by this action.
In addition, Moody's has downgraded the rating of EBS'
dated subordinated EMTN programme to Baa2 from A3. Further information
on this issue is set out below.
RATING RATIONALE
Out of the six Irish banking groups which currently benefit from significant
systemic support (BoI, AIB, EBS, IL&P, Anglo
Irish and INBS), the ratings of two institutions --
EBS and IL&P -- were downgraded as a result of the downgrade
of the Irish sovereign ratings (see below for rating actions in detail),
while the ratings of BoI and AIB were affirmed. All four institutions
have the same standalone financial strength rating of D (mapping to a
Ba2 on the long-term scale). The debt ratings of Anglo Irish
and INBS remain under review.
The downgrade of the Irish government's own bond rating to Aa2 indicates
a marginal reduction in the government's ability to support its
banking institutions. Among the four institutions that have the
same standalone rating of D (BoI, AIB, EBS and IL&P) both
EBS and IL&P are slightly more exposed to the sovereign ratings downgrade.
This is due to the different franchise strength, role and importance
of BoI and AIB compared to EBS and IL&P, and this has always
been reflected in a lower, albeit still high, likelihood of
systemic support for EBS and IL&P when compared to BoI and AIB.
The ratings of EBS and IL&P continue to reflect this high level of
implicit and, in the case of EBS, explicit support the two
institutions receive from the Irish government. This very high
level of support has lifted the senior ratings 6 notches above the level
that would be implied by their stand-alone financial strength (D,
which maps to Ba2 on Moody's long-term rating scale),
but with the downgrade of the Irish government's own bond rating
this uplift has now been reduced to 5 notches.
As the stable outlook on Bank of Ireland's and Allied Irish Banks'
debt ratings has indicated, the affirmation of these two banks'
ratings incorporates Moody's view that over the longer term these
two predominant banks should maintain their position in the domestic Irish
market and that their size and presence result in a very high probability
of on-going support from the Irish government, even beyond
the current difficult phase, which continues to underpin the 7-notch
uplift from their standalone financial strength rating of D.
The decision to maintain the review of Anglo Irish and INBS takes into
consideration the company-specific challenges that drive the ratings
of these two institutions which are not affected by the downgrade of the
sovereign rating. Both institutions currently have restructuring
plans lodged with the European Commission as a result of the extremely
high level of State Aid that they have received and these are likely to
result in a split of Anglo Irish into a good bank/bad bank, and
in the case of Irish Nationwide it is likely to be sold.
OUTLOOKS
The outlook on the long-term bank deposit ratings, as well
as on the senior and dated subordinated debt, of EBS and IL&P
is stable. This reflects Moody's view that over the longer term
the systemic importance of the two institutions will remain high leading
to a likely continuation of on-going support from the Irish government
over the short- to medium term. As discussed above the outlook
on the long-term bank deposit and senior debt ratings of AIB and
BoI remains stable.
The following ratings have been affected:
• EBS -- Long-term bank deposit and senior debt
ratings downgraded to A3 from A2, dated subordinated debt to Baa2
from Baa1, and short-term bank deposit and debt ratings to
Prime-2 from Prime-1. Due to the downgrade of EBS's
senior debt rating to A3, Moody's also downgrades the Mortgage Backed
Promissory Notes issued by EBS and EBS Mortgage Finance to A1.
The ratings of the Mortgage Backed Promissory Notes benefit from a two
notch uplift from EBS's senior debt rating. Please refer to the
"Framework Agreement in Respect of the issue of Mortgage Backed
Promissory Notes" on www.moodys.com. The standalone
Bank Financial Strength Rating of D, which maps to Ba2 on the long
term rating scale, was not affected by today's action.
EBS's tier 1 debt rating of Ca was also not affected as it does
not incorporate any systemic support.
• IL&P -- Long-term bank deposit and senior
debt ratings downgraded to A3 from A2, dated subordinated debt to
Baa1 from A3, and short-term bank deposit and debt ratings
to Prime-2 from Prime-1. Due to the downgrade of
IL&P's senior debt rating to A3, Moody's also downgrades
IL&P's Mortgage Backed Promissory Notes to A1. The ratings
of the Mortgage Backed Promissory Notes benefit from a two notch uplift
from the issuer's senior debt rating. Please refer to the "Framework
Agreement in Respect of the issue of Mortgage Backed Promissory Notes"
on www.moodys.com. The standalone Bank Financial
Strength Rating of D, which maps to Ba2 on the long term rating
scale, was not affected by today's action. IL&P's
undated subordinated debt rating of Ba3 was also not affected as it does
not incorporate any systemic support.
• AIB -- Long-term bank deposit and debt ratings
have been affirmed. These are A1 for long-term bank deposits
and senior debt, A2 for dated subordinated debt, Ba3 for undated
subordinated debt, B1 for cumulative tier 1 securities and Caa1
for non-cumulative tier 1 securities. The outlook on these
ratings is stable. AIB's bank financial strength rating of
D, which maps to Ba2 on the long term rating scale, with a
positive outlook is also unaffected by this rating action.
• BoI -- Long-term bank deposit and senior debt
ratings have been affirmed. These are A1 for long-term bank
deposits and senior debt, A2 for dated subordinated debt,
Ba3 for undated subordinated debt, B1 for cumulative tier 1 securities
and Caa1 for non-cumulative tier 1 securities. The outlook
on these ratings is stable. BoI's bank financial strength
rating is D, on review for possible upgrade and this is also unaffected
by this rating action.
• Anglo Irish -- The A3/P-1 bank deposit and
senior debt ratings as well as the Ba1 dated subordinated debt rating
and the Caa2 undated subordinated debt rating have been maintained under
review for possible downgrade as the key rating driver in Moody's view
remains the bank's restructuring plan that is currently waiting EU approval.
(See the Press Release "Moody's downgrades to Ba1 Anglo Irish Bank subordinated
debt" published on March 1, 2010 for further details.) The
outlook on the bank's E BFSR, mapping to a Caa1 on the long-term
scale, is stable.
• INBS -- The Baa3/P-3 bank deposit and senior
debt ratings and the Ba1 dated subordinated debt rating have been maintained
under review with uncertain direction. This review is focusing
on the likely sale of the institution in the future, which could
result in both an upgrade or a downgrade depending on the details of the
transaction and the credit quality of any potential purchaser.
• All rated government-backed long-term debt issues
of these six Irish institutions have been downgraded to Aa2 from Aa1,
with a stable outlook, in line with the Irish government's
debt rating. Short-term debt programmes of EBS and IL&P,
guaranteed by the Irish government, will remain rated Prime-1,
in line with the government's short-term rating.
• The ratings of the other Irish banks are unaffected by this rating
action as they either include a relatively low level of, or no,
systemic support; the rating uplift primarily stems from parental
support. These banks include KBC Bank Ireland (Baa2 negative;
D-/Ba3 negative), Bank of Scotland (Ireland) (Baa1,
negative; D-/Ba3 negative), Ulster Bank Ireland (A2,
negative; D-/Ba3 negative), Zurich Bank (A1, stable;
D-/Ba3 negative) and Hewlett Packard International Bank (A2,
stable; C-/Baa1 stable). None of these banks have participated
in the Irish governments guarantee schemes.
DOWNGRADE OF THE DATED SUBORDINATED EMTN PROGRAMME RATING OF EBS BUILDING
SOCIETY
Due to an administrative oversight, EBS' dated subordinated
EMTN programme rating was not downgraded on June 3, 2010,
when the dated subordinated debt of EBS was downgraded to Baa1 from A3.
For further information on this downgrade, please refer to Moody's
press release entitled "Moody's downgrades EBS Building Society's
subordinated debt and tier 1 securities" dated June 3, 2010.
Taking this into account together with today's rating actions,
Moody's has now downgraded EBS' EMTN Programme to Baa2 from
A3.
PREVIOUS RATING ACTIONS
The last rating action on Allied Irish Banks was on March 31, 2010
when the outlook on the D BFSR was changed to positive, from developing.
The last rating action on Anglo Irish Bank was on March 1, 2010
when the dated subordinated debt rating was downgraded to Ba1 from Baa1.
The last rating action on Bank of Ireland was on March 31, 2010
when the D BFSR was placed on review for possible upgrade.
The last rating action on EBS Building Society was on June 3, 2010
when the dated subordinated debt rating was downgraded to Baa1 from A3
and the non-cumulative Tier 1 instruments (issued through EBS Capital
No1 S.A.) were downgraded to Ca from Caa1.
The last rating action on Irish Life & Permanent was on February 10,
2010 when the undated subordinated debt rating was downgraded to Ba3 from
Ba1.
The last rating action on Irish Nationwide Building Society was on March
31, 2010 when the E+ BFSR was confirmed.
RATING METHODOLOGIES APPLIED
The principal methodologies used in rating these issuers are Moody's "Bank
Financial Strength Ratings: Global Methodology", published
in February 2007, "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology", published
in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities
and Subordinated Debt", published in November 2009, which
are available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Rating Methodologies
sub-directory on Moody's website.
All of the institutions are headquartered in Dublin, Ireland.
London
Johannes Wassenberg
MD - Banking
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 downgrades EBS, IL&P, and government-guaranteed debt of other Irish banks
