Republic of Ireland Long-Term Rating Lowered To 'AA-' On Higher Banking Sector Fiscal Costs; Outlook Negative
|Publication date: 24-Aug-2010 16:52:13 EST|
- The projected fiscal cost to the Irish government of supporting the Irish financial sector has increased significantly above our prior estimates.
- We are therefore lowering our long-term sovereign credit rating on the Republic of Ireland to 'AA-' from 'AA'.
- The negative outlook reflects our view that a further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government's ability to meet its medium-term fiscal objectives.
LONDON (Standard & Poor's) Aug. 24, 2010--Standard & Poor's Ratings Services said today that it lowered its long-term sovereign credit rating on the Republic of Ireland to 'AA-' from 'AA'. At the same time, the 'A-1+' short-term rating on the Republic was affirmed. The outlook is negative. The transfer and convertibility assessment remains 'AAA', as it is for all members of the European Economic and Monetary Union. The downgrade to 'AA-' applies to other ratings that are dependent on the sovereign credit rating on Ireland, including the issuer credit rating on the National Asset Management Agency (NAMA), and the senior unsecured debt ratings on government-guaranteed securities of Irish banks. "The downgrade reflects our opinion that the rising budgetary cost of supporting the Irish financial sector will further weaken the government's fiscal flexibility over the medium term," said Standard & Poor's credit analyst Trevor Cullinan. In light of the recent announcement of new capital injections into Anglo Irish Bank Corp. Ltd. (BBB/Watch Neg/A-2), our updated projections suggest that Ireland's net general government debt will rise toward 113% of GDP in 2012. This is more than 1.5x the median for the average of eurozone sovereigns, and well above the debt burdens we project for similarly rated eurozone sovereigns such as Belgium (98%; Kingdom of; AA+/Stable/A-1+) and Spain (65%; Kingdom of; AA/Negative/A-1+). After a decade of rapid credit growth, which in our view greatly increased the risk profile of Irish banks, the Irish government has adopted what we view as a proactive and transparent approach to dealing with the financial sector's difficulties. We believe this should help foster a gradual recovery of the Irish economy over the medium term. Nonetheless, we believe that the government's support of the banking sector represents a substantial and increasing fiscal burden, which in our view will be slow to unwind. We have increased our estimate of the cumulative total cost to the government of providing support to the banking sector from about ?80 billion (50% of GDP; see "Ireland Rating Lowered To 'AA' On Potential Fiscal Cost Of Weakening Banking Sector Asset Quality; Outlook Negative," published June 8, 2009, on RatingsDirect), to ?90 billion (58% of GDP). For details on how our 2010 estimate of Ireland's general government debt compares to official estimates, see Standard & Poor's commentary "Explaining Standard & Poor's Adjustments To Ireland's Public Debt Data," also published today. Our estimate includes two main components: the upper end of our estimate of the capital we expect to be provided by the Irish government to improve the solvency of financial institutions, and the liabilities we expect the government to incur in exchange for impaired loans acquired from the banks. We have increased our estimate of the cost to the Irish government of recapitalizing financial institutions to ?45 billion-?50 billion (29%-32% of GDP) from ?30 billion-?35 billion (19%-22% of GDP). "The negative outlook reflects our view that the rating could be lowered again if--as a result of its support for the financial sector or due to a more sluggish economic recovery--the government's fiscal performance improves more slowly than we currently assume," said Mr. Cullinan. Conversely, the outlook could be revised to stable if the Irish government looks more likely to achieve its fiscal target for the underlying general government deficit of less than 3% of GDP by 2014, or if the banking sector stabilizes more quickly and at a lower fiscal cost to the government than we now think likely. RELATED CRITERIA AND RESEARCH
- Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
- Rating Sovereign-Guaranteed Debt, April 6, 2009
- Sovereign Credit Ratings: A Primer, May 29, 2008
- Enhanced Methodology And Assumptions For Rating Government-Related Entities, June 29, 2009
- Ireland National Asset Management Agency (NAMA) Assigned 'AA/A-1+' Issuer Ratings; Outlook Neg; NAML Notes Rated 'A-1+', June 21, 2010
- Republic of Ireland 'AA/A-1+' Sovereign Ratings Affirmed; Outlook Remains Negative, April 8, 2010
- Republic of Ireland 'AA/A-1+' Sovereign Ratings Affirmed; Outlook Negative, Dec. 18, 2009
- Ireland Rating Lowered To 'AA' On Potential Fiscal Cost Of Weakening Banking Sector Asset Quality; Outlook Negative, June 8, 2009
- Republic of Ireland Rating Lowered To 'AA+'; Outlook Negative On Public Finance Concerns And Economic Growth Potential, March 30, 2009
- Republic of Ireland Outlook To Negative On Concerns About Public Finances; Ratings Affirmed, Jan. 9, 2009
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.
|Primary Credit Analyst:||Trevor Cullinan, London (44) 20-7176-7110;|
|Secondary Credit Analyst:||John Chambers, CFA, New York (1) 212-438-7344;|
|Additional Contact:||Sovereign Ratings;|
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an ?as is? basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT?S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P?s opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: firstname.lastname@example.org.