“The outlook remains negative..”

As RTÉ reports

Irish Bank share prices fell sharply this morning following a downgrade by credit rating agency Moody’s. AIB and Bank of Ireland shares have both dropped over 30%, while Irish Life & Permanent was down 21%. Moody’s cut its ratings on 12 banks operating in Ireland, despite the Government’s plan to create an asset management agency to buy up risky bank loans.

Update More market reaction.
From Moody’s [free subs req]

DOWNGRADES AND REVIEWS FOR DOWNGRADE ON BANK FINANCIAL STRENGTH RATINGS

The BFSRs of Allied Irish Banks, Bank of Ireland, and EBS Building Society were downgraded to D (mapping to a baseline credit assessment – “BCA” – of Ba2), with a developing outlook. This reflects our increased loss expectations as detailed above, and it is consistent with our definition that a bank with a D BFSR may need periodic outside support. The developing outlook on these institutions incorporates the extremely challenging economy, as well as the uncertainties around how the establishment of NAMA will affect the capital bases and ongoing profitability of the institutions. The BFSR of Bank of Ireland’s mortgage lending subsidiary ICS Building Society was also downgraded in line with its parent.

The downgrades of the BFSRs of Irish Life & Permanent (IL&P) to D (BCA: Ba2), negative outlook, and of KBC Bank Ireland to D- (BCA: Ba3), negative outlook, are based on Moody’s opinion that credit losses on residential mortgages, including buy-to-let (to which both institutions have a large exposure), will likely be substantially higher than previously anticipated as the unemployment rate in Ireland continues to increase rapidly. However, the BFSR of IL&P benefits from its strong position in the life assurance market through Irish Life, the market leader, and this diversification is an important element in the D BFSR. The negative outlook also indicates our expectation that IL&P will not benefit to the same extent as other institutions from the establishment of NAMA, as well as the increasing dependence on ECB funding. KBC Bank Ireland’s exposure to the Irish corporate market may lead to further stress on profitability and provisioning as the economy deteriorates further. The negative outlook on KBC Bank Ireland’s BFSR also reflects continuing concerns over the funding profile that is increasingly dependent on its Belgian parent. The rating action on IL&P concludes the review for possible downgrade on the BFSR initiated on February 17, 2009.

The downgrade of the BFSR of Irish Nationwide Building Society to E+ (BCA: B3) is a result of our view that losses on commercial real estate and development finance will continue to increase; in the current environment, we believe it will be difficult for the society to generate enough capital to cover the expected increased loan losses. As we have highlighted previously, the high concentration risk within the portfolio also remains a key concern. The outlook remains negative.

The downgrades of the BFSRs of Bank of Scotland (Ireland) and of Ulster Bank and its two subsidiaries, Ulster Bank Ireland and First Active to D (BCA: Ba2), are based on Moody’s view that the increased loan losses are likely to put substantial downward pressure on the stand-alone creditworthiness of the banks, especially given their relatively light capitalisation. The BFSRs also remain on review for possible downgrade. These reviews will focus on the ability of the banks to place assets in the UK’s Asset Protection Scheme through the respective ultimate parents, Royal Bank of Scotland and Lloyds Banking Group, and how the mechanics of this scheme will affect the BOSI and Ulster Bank legal entities.

The downgrade of the BFSR of Zurich Bank to D- (BCA: Ba3) is also a result of our view that losses on commercial real estate and development finance will continue to increase; in the current environment, we believe that it will be difficult for the bank to generate enough capital to cover the likely increase in loan losses. The outlook remains negative.

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  • Mick Fealty
  • George

    Pete,
    the problem with saying bank shares are tanking at the beginning of a market day is that they may well not be by the end of the day.

    Bank of Ireland shares are now back up to over 90 cent so have dropped less than 5% on the day.

    By the end of the day they could be in the black despite the downgrade.

    What could this all mean – the outlook remains positive? The downgrade was priced in? The budget has offset it? Panic selling followed by buying? No one has a clue?

  • Mack

    Collapsing bank shares are a positive, not a negative for the Irish economy.

    Why?

    Because whether the banks are a good investment depends on just who is going to be landed with the bill for their non-performing ‘assets’. A collapse in investor sentinment would indicate that the market feels investors will be wiped out, conversely a surge in the share price would indicate the market feels the taxpayer rather than investors will pay.

    Unfortunately the banks seem to be recouping much of today’s losses. Inline with the analyses emanating from our top economists over at irisheconomy.ie that this may be a bad deal for the taxpayer.

  • The downgrade of the BFSR of Zurich Bank is also a result of our view that losses on commercial real estate and development finance will continue to increase; in the current environment, we believe that it will be difficult for the bank to generate enough capital to cover the likely increase in loan losses..frugal living