Moody's downgrades bank debt

Ratings agency Moody's has downgraded the unguaranteed senior unsecured debt of six Irish banks and said it may also cut deposit ratings.

The agency said it was taking the decision following recent statements by the Government that Moody's said call into question its willingness to provide any additional support to the banks beyond that provided to date.

Moody's cut the unguaranteed senior unsecured debt ratings of the Bank of Ireland (BoI) to Ba1/Not-Prime from Baa2/P-2. AIB meanwhile was cut to Ba2 from Baa3. EBS Building Society (EBS) and Irish Life & Permanent (IL&P) debt ratings fell to Ba2/Not-Prime from Baa3/P-3. Anglo Irish Bank and Irish Nationwide Building Society have been cut to Caa1 from Ba3.

The ratings agency also said the long-term unguaranteed senior unsecured debt ratings of these banks have been placed on review for further possible downgrade.

“Moody's rating actions today reflect a reduction in its systemic support assumptions for the domestic Irish banks. In line with the Irish Government's very supportive policy to date, Moody's has until now assumed a high degree of systemic support for the banks' senior unsecured debt and deposits, as a result of which the corresponding ratings have enjoyed three to four notches of uplift from the standalone ratings,” it said in a statement.

“This supportive policy has been brought into question over the past days, in statements from both the leading opposition party and the incumbent finance minister. While some of these statements may reflect the current pre-election debate, Moody's is increasingly concerned that they represent a growing underlying threat for senior creditors from two directions.”

Moody’s said it noted the Government’s support beyond a certain date was now more difficult to predict.

“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,” it said.

The agency also said there was an increasing risk that subordinated creditors and senior creditors would be forced to share the burden of the bank bailout, through distressed exchanges.

The six banks and ICS Building Society are also facing possible downgrade on their deposit ratings. Moody's has placed them on review

Meanwhile, the senior unsecured and bank deposit ratings of KBC Bank Ireland have been downgraded to Baa3/P-3 from Baa2/P-2, with a negative outlook.