CREDIT RATINGS agency Fitch downgraded Anglo Irish Bank yesterday, citing its belief that the bank would not receive the same level of Government support under the plan to wind down its loan book over the long-term.
Allied Irish Banks had its credit rating affirmed by Standard and Poor’s following the sale of the bank’s Polish lender Bank Zachodni WBK last week.
Given that Anglo was being split into a funding bank and an asset-recovery bank to be wound down over time, Fitch said it believed that Anglo would be “less systemically important” than it is now.
While Anglo’s asset-recovery bank would continue to benefit from “a high level of government support”, the scope of the long-term support “may be less than what would otherwise be available to Anglo as a fully functioning deposit-taking bank”, said Fitch.
The agency believes the asset-recovery bank will have “a very weak loss-absorption capacity” without Government support as the National Asset Management Agency loan transfers in the second half of the year will absorb most of Anglo’s capital reserves.
The bank was placed on negative watch by Fitch, meaning a further ratings downgrade is likely.
This reflects the agency’s view that there is significant further downside risk for the unsecured unguaranteed creditors of the asset recovery bank under the Government’s proposed structure.
Minister for Finance Brian Lenihan has said the Government may buy back more of Anglo’s dated subordinated debt at discount generating capital after the guarantee on this riskier debt lapses at the end of this month.
Fitch said there was a possibility that an orderly wind-down of Anglo’s assets may require the Government to extend explicit guarantees to senior unsecured debt.
If senior unsecured creditors benefit from this, the rating of senior unsecured debt would be upgraded to the same level as Irish Government debt, Fitch said.
Meanwhile, SP left AIB’s outlook on “negative”, reflecting its view that the bank “still has much to achieve” to complete the capital raising of €7.4 billion, including the €2.5 billion capital gain from the sale of BZ WBK last week.
