Fitch lowers Ireland’s credit rating

IRELAND’S top AAA credit rating was lowered one level by Fitch Ratings last night, the second reduction in two weeks, after global financial turmoil fuelled a surge in borrowing costs and swelled the budget deficit.

The rating was dropped to AA+ with a “negative” outlook, indicating Fitch is more likely to lower the classification again than raise it or leave it unchanged. Ireland received the top rating in December 1998. S&P’s lowered Ireland’s rating one step to AA+ on March 30.

The change comes a day after the Government announced an emergency budget aimed at controlling a ballooning deficit and reviving the stricken economy. The Government plans to take on property loans from banks worth as much as e90 billion, the equivalent of about half our annual economic output.

“The rating reduction has already been discounted and it’s all in the price of the bonds,” said Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING Groep. “Investors now want to see some completion of the ratings actions.”

The Government’s budget projections show that gross government debt will rise to around 80% of gross domestic product by 2011, a more than threefold increase from its pre-recession level of 25% at the end of 2007, Fitch said. This is a much faster increase than expected in any other AAA rated sovereign nation, the credit-rating company said.

Meanwhile, bank shares plunged yesterday after another ratings agency, Moody’s, downgraded its financial-strength rating on 12 Irish lenders, saying their profits will be hurt this year.

The ratings agency said property losses are likely to “significantly weaken the capital positions” of most banks and building societies in Ireland.

The rating on each bank was downgraded by at least one level.

“A key risk to the Irish banks in the current environment is their large exposures to residential and commercial development, given the substantial reduction in asset prices and even higher falls in land values,” Moody’s said.

In early trading AIB plunged as much as 39%, its biggest intraday decline since January 19.

Bank of Ireland slumped 28% and Irish Life & Permanent fell 6%.

At close AIB and Bank of Ireland were both down 7%, shedding 9c and 7c to e1.19 and 89 cent respectively. Irish Life & Permanent did manage a gain on the day, jumping 5.7% to e1.74.

Despite the financial losses, the ISEQ index added 37.34 points to close at 2,310.53.