Resignations may hit Anglo's reputation - S&P

The resignations of Anglo Irish Bank’s chairman Seán FitzPatrick, and chief executive David Drumm, may significantly impact on Anglo’s reputation, according to international rating agency, Standard Poor's.

Mr FitzPatrick resigned last week after details emerged of his practice of moving loans worth €87 million between Anglo and Irish Nationwide Building Society. The loans were moved either side of Anglo's year-end to hide them from shareholders.

Mr Drumm resigned last Friday, saying it was appropriate he step down following the resignation of Mr FitzPatrick.

The agency said: "We believe it is likely that the revelation and the loss of two significant senior management figures may have a significant impact on Anglo's standing in the marketplace."

Ratings agencies assess the final health of banks and their ratings determine the cost that banks must pay for their money.  

Standard Poor's has also maintained its long and short-term counterparty ratings on Anglo Irish Bank at "A-/A-1".

"The CreditWatch placement on Anglo reflects our continuing reservations about the long-term viability of Anglo's business model, which we consider confidence sensitive on both the asset and liability side of the balance sheet; continuing concerns regarding material asset-quality pressures arising from its concentrated loan book; and the bank's long-term funding plans."

Standard Poor's said it planned to discuss the "asset quality, funding, and future business strategy" with Anglo's management over the coming weeks.

"As a result of our view of the potential damage to the bank's reputation and its low level of financial flexibility, we now factor in three notches of extraordinary support into the counterparty credit rating on Anglo above our view of its stand-alone credit strength."

On Sunday the Government announced it would inject €5.5 billion into the State's three main banks - Allied Irish Banks, Bank of Ireland (BoI) and Anglo Irish Bank.

The Government is effectively taking control of Anglo Irish by investing €1.5 billion for a 75 per cent stake. It is investing €2 billion each in AIB and BoI.

The State may also invest a further €1 billion each in AIB and BoI as it has agreed to underwrite the issue of further shares at each bank.

Standard Poor's recognizes the stabilising influence the programme "will, in our view, have on addressing investors' expectations regarding the banks' capitalisation" but notes the investment is "not common equity".

It added that the State is facing a "deep and prolonged" economic slowdown that will hit the profits and asset quality of Irish banks.

It said "greater government involvement in the banking industry, particularly for an extended period, may be to the detriment of the stand-alone creditworthiness of banks, for example, if underwriting or credit acceptance criteria are relaxed as a result."

The agency has also maintained its negative debt rating outlook on the State's two largest banks, AIB and BoI, following the Government's recapitalisation plan.

It affirmed its "A+/A-" rating on AIB and said the "outlook remains negative". For BoI the agency said the CreditWatch placement reflects its difficult operating environment and the "challenges to the bank's earnings presented by its deteriorating asset quality".

The negative debt rating outlook for AIB reflects the agency's concerns about the "likely progression of asset quality, which have been offset only in part" by the capital injection.

"The ratings on AIB continue to reflect its strong domestic market position, expected challenged profitability in the coming years, and our view of the significant downsides to asset quality from expected levels."

Standard Poor's warned that AIB's ratings could be lowered if the economic environment in Ireland continues to deteriorate.

While shares in AIB and BoI have risen following the Government's recapitalisation plan Anglo stock has come under renewed pressure.

At 3.30pm today Anglo's shares were 30 per cent lower at 21 cent. At this share price the bank has a market capitalisation of €158 million.