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Rating Action:

Moody's downgrades EBS, IL&P, and government-guaranteed debt of other Irish banks

21 Jul 2010

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
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