Reaction positive to latest figures

REACTION to the latest bailout of the banks has been broadly positive with analysts pointing out that the €24 billion will add no more than €2bn to the gross national debt. This is equal to about 1.5% of GDP.

That will leave our debt-GDP ratio at a high but sustainable 100%, said Davy Research yesterday.

Most of the additional capital requirement will be met by the National Pension reserve Fund cash reserves and some further debt management of subordinated bonds, they said.

Internationally, the rating agencies are continuing to stay negative in their assessment of the outlook for the economy.

S&P issued a downgrade yesterday but, according to Eoin Fahy of KBI, the commentary wasn’t all bad.

Ireland was downgraded by one notch to BBB+, but “very importantly” it changed the outlook from negative to “stable”.

All three agencies Fitch, Moody’s and S&P, now rate Ireland at BBB+ or equivalent, which is three notches above non-investment grade, he said.

The downgrade reflects the new European arrangements agreed last week where sovereign debt restructuring/default is a possible precondition to getting a bailout from Europe, post-2013, he said.

Fahy said the S&P commentary was “quite positive” and described the stress tests as “robust.”

The agency said the cost of the recapitalisation banks was within the range of its own expectations. The sharp contraction in the economy has reached an end, and that the economy is now set to gradually recover.

Dermot O’Leary, chief economist Goodbody Stockbrokers, also viewed the outcome of the tests as positive, but stressed the importance of further EU support to get the economy though the current crisis.

“With significant capital buffers going to be in place in the banks, solvency should not be a concern,” he said.

But liquidity remains an issue and “the absence of an announcement by the ECB on a longer-term liquidity facility for the Irish banking system was a disappointment,” he said.