Moody’s downgrades senior debt at five Irish banks and building societies

INTERNATIONAL credit ratings agency Moody’s has downgraded the senior debt levels of Irish banks that are not secured by the Government here, on concerns that senior bondholders will have to share the cost of bailing out our banking system.

Yesterday’s downgrade covers senior debt owned by AIB, Bank of Ireland, Anglo Irish Bank, the Irish Nationwide Building Society (INBS) and EBS Building Society. Between them, the five institutions have €15.2 billion in senior unsecured debt. Of that, AIB accounts for €5.8bn, Bank of Ireland for €5.2bn, Anglo Irish Bank €3.1bn, the EBS €500m and INBS €630m.

Moody’s has cut AIB’s relevant debt rating from ‘Baa3’ to ‘Ba2’; Bank of Ireland’s from ‘Baa2’ to ‘Ba1’; Anglo’s rating from ‘Ba3’ to ‘Caa1’; INBS from ‘Ba3’ to ‘Caa1’ and the EBS from ‘Baa3’ to ‘Ba2’. The agency also cut its debt rating for Irish Life & Permanent (IL&P) — the only non- NAMA-related entity of the relevant Irish banks — from ‘Baa3’ to ‘Ba2’.

Moody’s said that recent statements made by Irish politicians — both in Government and opposition — seemed to cast doubt on the State’s willingness to support the banks further and instead put more of the cost onto bondholders.

Earlier this week, Finance Minister Brian Lenihan said a substantial discount on €20bn-worth of unsecured senior bank bonds was being sought as a way of sharing the cost burden regarding the banks, and that opposition parties are singing from the same hymn sheet.

“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,” the rating agency said.

The European Central Bank (ECB) rejected the Government’s call for a greater bondholder burden share in December, even though the Government has pumped close to €50bn into propping up the country’s banking system. Irish banks have another €6bn of combined subordinated debt, €21.8bn senior secured debt and €16bn in government-guaranteed debt.

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