AIB shares down 2.9% as agency cuts rating

SHARES IN Allied Irish Banks closed down yesterday in Dublin by 2.9 per cent to 39.5 cent as ratings agency Standard & Poor’s downgraded it by one notch.

S&P lowered AIB’s long-term credit rating from ‘A-’ to ’BBB+’ with a negative outlook.

This means the Irish bank is just one rung above junk status on SP’s credit ratings ladder.

S&P also downgraded AIB’s UK subsidiary, which it plans to sell, to ‘BBB’ from ‘A-’.

This represented the latest downgrade by a ratings agency for the beleaguered Irish financial sector in recent months.

AIB was downgraded following the Financial Regulator’s decision last week to require it to raise more capital, which is likely to result in the State taking majority ownership.

AIB’s executive chairman Dan O’Connor and managing director Colm Doherty also agreed to leave in the coming weeks to allow for a restructuring of the bank’s board.

“We consider that Allied Irish Bank’s reputation has deteriorated further as a result of the higher level of capital that it is required to raise by its regulator and due to Government-imposed management changes,” S&P said.

“In our opinion, the ability of AIB to return to an ‘A’ category stand-alone credit profile is unlikely for a number of years.”

In S&P’s table of ratings, a ‘BBB’ designation is applied when “adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity” for an entity to meet its financial commitments.

S&P has also lowered AIB’s lower Tier 2 subordinated debt ratings to ‘BB’ from ’BBB+’.

The agency said the downgrade reflected the Government’s intent that subordinated debt holders in Anglo and Irish Nationwide should be subject to “appropriate burden sharing”. “In our view, AIB, Bank of Ireland and Irish Life & Permanent now face a similar risk that their lower Tier 2 debt will be restructured,” S&P explained.

In its note, S&P analyst Nick Greenwood said: “The negative outlook on AIB reflects our opinion on the downside risk to the recovery in its earnings, our expectation that its significant reliance on funding and liquidity support from the authorities will persist for the foreseeable future and a degree of uncertainty that persists over AIB’s disposal programme.”

He added that the ratings could be lowered again if earnings remain weak; if AIB’s funding profile fails to improve; or if S&P observes difficulties with its restructuring.

The Financial Regulator last week decided that AIB needs €10.4 million in additional funding to meet its capital adequacy ratios. This is €3 billion higher than previously stated in March.

The sale of its Polish subsidiary will raise €2.5 billion while AIB expects to raise €900 million from the disposal of its 22.5 per cent stake in MT Bank in the United States. AIB will launch a €5.4 billion equity raising programme in November, underwritten by the State.