Moody’s Investors Service on Friday downgraded the unsecured, unguaranteed senior debt of six Irish banks in the wake of news that the outgoing Irish government would not fund banks before it left and the threat of the new government’s potential to demand concessions on the nation’s bailout. The move came just a day after the ratings agency cut Bank of Ireland’s junior securities to Ca.
In a Reuters report, Moody’s said that the move was warranted considering the increasing risk that senior creditors might have to share in losses. That possibility also locks Ireland out of the interbank lending markets for a longer period of time and increases their dependency on the European Central Bank (ECB) for funding.
On Thursday, as reported by AdvisorOne, the outgoing Irish government dropped a bomb on the incoming opposition by announcing that they would not further fund banks; instead they would leave it to incoming officeholders to do that. The move could jeopardize the bailout package put together by the International Monetary Fund (IMF) and the European Union (EU), since Fine Gael, the party expected to lead the new government, voiced its opinion that Irish banks should be stress tested before any additional funding is granted. Also, Labour leader Eamon Gilmore went so far as to say in Friday’s Irish Times that Labour would not agree to inject any more capital into Irish banks until the rescue package is renegotiated on terms more favorable to Irish citizens.
The ratings agency had this to say about its decision: "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.”
It went on to add, "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."
Moody’s downgraded the following: Bank of Ireland, from Baa2/P-2 to Ba1/Not-Prime; Allied Irish Bank, already at the lowest investment grade rating of Baa3, to Ba2; EBS Building Society and Irish Life & Permanent, from Baa3/P-3 to Ba2/Not-Prime; and Anglo Irish Bank, which on Tuesday reported a loss for the full year of 17.6 billion euros ($23.792 billion), an Irish record, and Irish Nationwide Building Society, from Ba3 to Caa1.