Taoiseach Brian Cowen said a "manageable" plan to deal with Anglo Irish Bank will be presented soon, as Standard and Poor's said the bailout may cost the Government more than €35 billion.
Asked today if record high borrowing costs will mean Ireland will soon be shut out of markets and will need to access a euro zone rescue fund, Mr Cowen said the State had already raised enough funds to see it through the middle of next year.
"We are determined to do what's necessary to achieve international confidence and build domestic confidence," he told reporters.
S&P credit analyst Trevor Cullinan earlier said the final cost of bailing out the State-owned lender could rise above previous estimates.
"Estimates which were previously strongly against our €35 billion now seem to be coming in line with that recapitalisation cost," Mr Cullinan said in an interview to be broadcast on RTÉ's Prime Time tonight. "So the Government's kind of Plan B with Anglo means this €35 billion could even be exceeded."
Any figure that exceeded that could trigger rating downgrades.
There was also some threat to Fitch ratings on Irish debt. "I cannot pretend that the current rating is totally secure," Chris Pryce, a senior analyst with Fitch, which currently has Ireland at AA- with a stable outlook, told Reuters in an interview.
The Financial Regulator will this week release an estimate for recapitalising the State-owned lender as it is split into a deposit bank and an asset-recovery unit.
Irish bonds dropped today, pushing the extra yield that investors demand to hold the country's 10-year debt over German bunds to a record 452 basis points.
"The sell-off seems to be triggered by the S&P remarks," Fergal O'Leary, a director at Dublin-based Glas Securities, which specialises in fixed-income markets. "S&P's previous estimate of €35 billion was at the upper end of market expectations. Any suggestion that this could be raised is a concern."
Default swaps insuring Anglo's senior bonds rose 4.5 basis points to 940.5, compared with an all-time high closing price of 959 on September 23rd, according to CMA.
S&P lowered Ireland's credit rating to 'AA-' on August 24th, warning of further possible downgrades. The ratings company said yesterday it doesn't expect Ireland to default on its debts. If the €35 billion estimate is exceeded, there could potentially be further downward rating actions from S&P, Mr Cullinan said.
Anglo's senior debt was yesterday cut to the lowest investment grade rating by Moody's Investors Service, which said it may reduce the rating to junk unless the government guarantees bondholders against losses.
Anglo's subordinated debt, guaranteed by Ireland's government until September 29th, was downgraded to Caa1 from Ba1.
The Government appears to "remain resolute that there will be no renegotiation" with Anglo's senior bondholders, Goodbody Stockbrokers said in a note to clients today.
The cost of credit-default swaps to insure the senior debt of Anglo rose 5 basis points today to a record 941 basis points, according to data provider CMA. The contracts have more than doubled since July, CMA prices show. Credit-default swaps on Irish government debt rose 31 basis points to 519, according to CMA.
Bloomberg, Reuters