No impact on stand-alone financial strength ratings
London, 18 April 2011 -- Moody's Investors Service has today downgraded the ratings of several
Irish banks following Moody's rating action on the Irish government's
bond ratings which have been downgraded by two notches to Baa3 with a
negative outlook from Baa1. Today's bank rating actions are:
• Moody's has downgraded by two notches the long-term bank
deposit ratings of Allied Irish Banks (Allied Irish), Bank of Ireland
(BoI), EBS Building Society (EBS) and Irish Life & Permanent
(IL&P), and that of ICS Building Society (ICS) by one notch.
BoI and ICS are now rated Ba1. Allied Irish, EBS and IL&P
are now rated Ba2. The short-term bank deposit rating at
these five institutions has been downgraded to Not-Prime,
from P-2 for BoI and from P-3 for the other four institutions.
• Moody's has downgraded by one notch the unguaranteed senior
unsecured debt ratings of Allied Irish, EBS and IL&P to Ba3
and BoI to Ba2.
• The outlook on the long-term bank deposit and unguaranteed
senior unsecured debt ratings of these institutions is negative,
in line with the outlooks on the government rating and on the stand-alone
ratings of the banks.
• This action concludes the review on these ratings initiated on
February 11, 2011.
• Moody's has also downgraded to Baa3 the debt guaranteed under
the Irish government's Eligible Liabilities Scheme. This refers
to the government-backed senior debt of five institutions --
Allied Irish, Anglo Irish, BoI, EBS and IL&P.
RATINGS RATIONALE
The rating actions announced today are best understood as: (i) the
reduction in the level of systemic support embedded in our deposit ratings
following the downgrade of the sovereign rating; and (ii) the removal
of systemic support from the unguaranteed senior unsecured debt ratings
meaning that these are now placed at the same level as the stand-alone
ratings of the banks.
RATIONALE FOR THE DOWNGRADE OF BANK DEPOSIT RATINGS
The bank deposit ratings of Allied Irish, BoI, EBS,
ICS and IL&P have been downgraded following the two-notch downgrade
of the Irish government bond rating. At Ba1/N-P (for BoI
and ICS) and Ba2/N-P (for Allied Irish, EBS and IL&P)
these ratings continue to incorporate one notch of rating uplift from
the banks' stand-alone ratings, reflecting the explicit
support received by the institutions and Moody's expectation that
further support for the deposits would likely be forthcoming in the event
of need. This is based on the supportive attitude of the Irish
government towards depositors as witnessed recently by the transfer orders
to sell the deposits of Anglo Irish Bank and Irish Nationwide Building
Society to Allied Irish and IL&P. The Ba1 bank deposit rating
of ICS is now at the same level as that of its parent BoI. This
reflects that, given the high level of integration of ICS in BoI
and Moody's view that a sale of the institution is now less certain,
it is unlikely that the government would differentiate support between
deposits at the two institutions.
RATIONALE FOR THE REMOVAL OF SYSTEMIC SUPPORT FROM THE UNGUARANTEED SENIOR
UNSECURED DEBT RATINGS
The new Irish government has already committed to supporting the banking
system in its capital requirements following the announcement of the PCAR
stress tests (Prudential Capital Assessment Review) and the PLAR (Prudential
Liquidity Assessment Review) restructuring and deleveraging process (see
"Moody's comments on Irish Banks following announcement of new capital
requirements; no impact on senior ratings", 1 April 2011).
However, Moody's believes that there is a high level of uncertainty
around whether the government would extend further support to the banking
sector if required (beyond the EUR35 billion that has been committed to
as part of the EU/IMF support package). As a result, Moody's
is no longer incorporating any systemic support in the unguaranteed senior
unsecured debt ratings of the domestic Irish banks and these are now placed
at the same level as the stand-alone ratings of the banks.
However the unguaranteed senior unsecured debt ratings are not positioned
below the stand-alone ratings as we do not see any imminent risk
of distressed exchanges or specific unguaranteed senior unsecured debt
burden sharing legislation for the "going concern" banks.
In the event that the risk for unguaranteed senior unsecured debt was
to increase then the banks' unguaranteed senior unsecured debt ratings
would likely face further multi-notch downgrades.
NO IMPACT ON STAND-ALONE BFSRs
There are no rating implications for the standalone bank financial strength
ratings (BFSRs) of the banks because (i) the overall losses incorporated
into the capital requirements for the four institutions are in line with
those that Moody's has been using in its own scenario analysis (the
overall three-year provision charge of EUR27.7 billion compares
to Moody's expected losses of approximately EUR32 billion);
and (ii) the four banks' standalone ratings -- D for
BoI, mapping to Ba2 on the long-term scale and D-
for AIB, EBS and IL&P, mapping to Ba3 --
already incorporate a significant recapitalisation of up to EUR35 billion
in total made available under the EU/IMF support package.
Furthermore, the BFSRs continue to reflect: (i) the banks'
significant short-term funding pressures which have led to the
high reliance on external funding; and (ii) the uncertain operating
environment meaning that asset quality and earnings are likely to remain
extremely weak. In addition, Moody's considers that
the deleveraging process could further exacerbate asset quality and earnings
pressures.
No deadline has been provided by which the PCAR capital requirement must
be raised and Moody's assumes that the capital will be injected
in the near future. However, if the capital is not forthcoming
for any reason, then the BFSRs would likely come under downward
pressure.
A key factor in any future upward pressure on BFSRs will be whether the
measures outlined in the PCAR and PLAR process can now begin to restore
confidence in the Irish banking system. However, for the
foreseeable future, Moody's expects that the banks will continue
to face funding difficulties; therefore the ongoing liquidity support
from the Eurosystem remains vital. Moody's considers that
the announcement by the ECB that it will now accept all debt instruments
backed by the Irish government as collateral against ECB loans as a credit
positive for the banking sector.
ANGLO IRISH AND IRISH NATIONWIDE BUILDING SOCIETY
Neither Anglo Irish Bank Corporation (Anglo Irish) nor Irish Nationwide
Building Society (INBS) were included in the PCAR and PLAR process (both
banks are rated Caa1 on review for possible downgrade/Not-Prime
for senior debt and bank deposits with BFSRs of E, mapping to Caa1
on the long term scale).
Moody's understands that a further assessment of the capital requirements
for Anglo Irish and INBS will be completed in May and as a result,
the Caa1 unguaranteed senior unsecured debt ratings and long-term
bank deposit ratings remain on review for possible downgrade. Moody's
aims to complete its review of these ratings shortly after this process
is completed. The review continues to focus on the new government's
stance towards senior creditors, and the remaining depositors of
the two institutions, including the remaining deposits. If
the risk increases that senior creditors will be forced to bear losses,
the ratings would likely face further downgrades.
GOVERNMENT GUARANTEED DEBT
In line with the sovereign rating action, Moody's has downgraded
to Baa3 (negative outlook) from Baa1 the government-backed senior
debt of AIB, Anglo Irish, BoI, EBS and IL&P which
have each issued public debt under the Eligible Liabilities Guarantee
scheme (see "Moody's downgrades Ireland to Baa3 from Baa1;
outlook remains negative", 15 April 2011). The assigned
government-backed Baa3 ratings are based on the unconditional and
irrevocable guarantee from the Irish government (see "Moody's to
assign backed-Aa1/Prime-1 ratings to debt securities covered
by the Irish government's new guarantee", 7 January 2010).
The principal methodologies used in this rating were Bank Financial Strength
Ratings: Global Methodology published in February 2007, and
Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology published in March 2007.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating 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 issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its 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.
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Moody's downgrades Irish bank ratings
