Moodys give Irish banks Junk status

sensibleken

http://www.rte.ie/news/2011/0418/banks.html

"Moody's has cut the long-term bank deposit ratings of Ireland's Government-backed banks by two notches following a downgrade for the country last week.
This means all Government-backed banks are now classified as junk.
The rating agency cut Ireland's rating to Baa1, just above junk status, on Friday and kept its outlook on negative.
Bank of Ireland is now rated Ba1 following today's cut.
AIB, EBS and Irish Life & Permanent are rated Ba2, one notch below Bank of Ireland."

So what does this mean. will this have any effect on normal deposits?

Scofflaw

sensibleken wrote: »

http://www.rte.ie/news/2011/0418/banks.html

"Moody's has cut the long-term bank deposit ratings of Ireland's Government-backed banks by two notches following a downgrade for the country last week.
This means all Government-backed banks are now classified as junk.
The rating agency cut Ireland's rating to Baa1, just above junk status, on Friday and kept its outlook on negative.
Bank of Ireland is now rated Ba1 following today's cut.
AIB, EBS and Irish Life & Permanent are rated Ba2, one notch below Bank of Ireland."

So what does this mean. will this have any effect on normal deposits?

No, it has no effect on deposits. It hasn't really any direct effect at all at the moment, because we were already in a position where nobody was willing to lend to the covered banks. What it does suggest is that the Irish banks aren't in a position to come off ECB life-support any time soon - but I don't think anyone thought they would be.

What's more interesting, perhaps, is the reasoning behind the cut:

Moody’s said there is a high level of uncertainty around whether the Government would extend further support to the banking sector if required, beyond the €35 billion that has been committed to as part of the EU/IMF support package.

“As a result, Moody’s is no longer incorporating any systemic support in the unguaranteed senior unsecured debt ratings of the domestic Irish banks and these are now placed at the same level as the stand-alone ratings of the banks,” it said.

They're saying, in other words, that they believe that the Irish government will prefer to burn senior unguaranteed unsecured bondholders rather than put more money into the banks.

cordially,
Scofflaw

later12

A little off topic, but any literary enthusiasts (or those who had a fondness for leaving Cert English) reading that article might sense a likeness between the junk status of our pillar banks and the 'two vast and trunkless legs of stone' that was that colossal wreck and a tribute to the sneer of Ozymandias.

http://www.online-literature.com/shelley_percy/672/

sarumite

I have noticed a movement by Fitch and S&P away from moody's lately, particularly towards our soverign credit. Is it possibly that moody's has an overly pessimistic outlook?

later12

sarumite wrote: »

I have noticed a movement by Fitch and S&P away from moody's lately, particularly towards our soverign credit. Is it possibly that moody's has an overly pessimistic outlook?

Yes, it is possible. They appear to have a particular worry about the future ESM that appears to be unique to them (or was as of last Friday). Being overly pessimistic in relation to other agencies is not an attribute of Moody's generally, though. They are usually broadly in line with the others, S&P in particular.

loldog

Please bear in mind that Moodys are gangsters and criminals who were happy to rate the toxic mortgage assets that Goldman insiders were calling "****ty deals". They are scum and have no credibility.

.

ei.sdraob

Scofflaw wrote: »

No, it has no effect on deposits.

It does, corporate treasurers are often not allowed deposit company money in junk deposit banks, in the same way that investors such as hedge/pension funds might be prevented from investing in junk bonds.

It is very important to understand that this is a deposit downgrade, not one of the many bond or sovereign downgrades we had as recently as last week.

ei.sdraob

Scofflaw wrote: »

They're saying, in other words, that they believe that the Irish government will prefer to burn senior unguaranteed unsecured bondholders rather than put more money into the banks.

http://www.bbc.co.uk/news/business-13112488

However, Moody's remains concerned about Dublin's ability to push through a restructuring of its own debts and that of the now mainly-nationalised banking sector.

"Should the intended fiscal consolidation goals not be met, a further rating downgrade would likely follow," Moody's said in a statement.

"Moreover, a further deterioration in the country's economic outlook would also exert downward pressure on the rating."

This is a deposit downgrade driven by fears of our now nationalised banks, not a bond downgrade, i am not sure why you are bringing bonds into the thread.

later12

ei.sdraob wrote: »

It does, corporate treasurers are often not allowed deposit company money in junk deposit banks

"Often"? Define often. You're thinking mainly of financial institutions and other banks here - this was pointed out to you on another thread. Mainstream commercial deposits have (a) either been forced to remove deposits in line with regulatory practices when the banks or the state fell from high and upper medium tiers - in which case this happened long ago or (b) according to their own guidelines, which again would have caused deposits to shift perhaps two years ago. It has nothing to do with the present day, regular commercial deposits are pretty much unaffected by this rating.

later12

ei.sdraob wrote: »

i am not sure why you are bringing bonds into the thread.

I believe Moodys brought bonds into this - read their press release accompanying the downgrade.

Voltex

Again..slightly off topic, but looks like S&P have even given a negative outloook on the USA's AAA rating unless they take meaningful action on the medium to long term debt and deficit issues.

Now..if the rating agencies can have such an effect, that they can see billions wiped off the value of a Nations commercial wealth (as I write this the Dow is down 160 points on the day) by way of an opinion ,then there is something wrong with the balance of power.

The ratings agencies now seem to be a source of political power in todays indebted nations. Their opions and analyses seem to carry so much influence that they can sway political decisions.

later12

Voltex wrote: »

Again..slightly off topic, but looks like S&P have even given a negative outloook on the USA's AAA rating unless they take meaningful action on the medium to long term debt and deficit issues.

I haven't read it and so am open to correction but I think it is a 1/3 chance over a two year period?

Gold explosion, first thing that comes to mind. This also raises concern about the UK as the world's other consipicuous 'invincible'.

Voltex

http://www.bloomberg.com/news/2011-04-18/standard-poor-s-puts-negative-outlook-on-u-s-aaa-rating.html

I think the UK was givena heads up last year...hence the Tories position on the national debt and deficit. I really think the agencies want a clear picture of what the forward position will be in attitude to debt.

Delancey

loldog wrote: »

Please bear in mind that Moodys are gangsters and criminals who were happy to rate the toxic mortgage assets that Goldman insiders were calling "****ty deals". They are scum and have no credibility.

.

Standard and Poor's were even worse.

later12

I think you're right. If this doesn't give rise to some co-ordinated action between the house and the senate, I don't think anything will. Interesting to see how the repercussions of this will affect Obama in opinion polls.

I really hate gold bugs for their tedious, duface investments, but I would imagine that a lot of them will be popping corks on today's announcement.