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Banks (Finance)

Irish Bank Shares Plummet Amid Moody's Downgrade Review

Strategic Insights

— 2 min read

Moody's, a leading credit rating agency, announced yesterday that it will review Ireland's triple-A debt rating, sparking concerns about the country's financial stability. The review comes as the Irish government prepares to launch its bad bank plan, which will see banks' troubled property loans taken over by the National Asset Management Agency (NAMA) at a discount to book value. This move has raised concerns among analysts, including Citigroup, which estimates that the writedowns will crystallise pre-tax losses of €7.9bn at Allied Irish Banks in 2009 and €5bn at Bank of Ireland.

Key Takeaways:

  • Moody's has put Ireland's triple-A debt rating on review for possible downgrade, citing concerns about the impact of the bad bank plan on the country's debt.
  • The bad bank plan will see banks' troubled property loans taken over by NAMA at a discount to book value, with the government anticipating that €80bn-€90bn (around £79bn) of loans will be transferred to the agency.
  • Citigroup estimates that the writedowns will crystallise pre-tax losses of €7.9bn at Allied Irish Banks in 2009 and €5bn at Bank of Ireland.
  • A group of 20 leading Irish economists has called on the government to abandon the bad bank plan and take the banks into temporary state ownership, citing concerns about the plan's transparency and likely impact on the banking system.
  • Irish Nationwide, the building society at the centre of the government's bank bailout plan, reported a loss in 2008 of €243m after taking a bad debt provision of €464m, or 4.4% of total loans.
  • Concerns are centred on €2.2bn of debt securities maturing in 2009, with the society dependent on government support to remain a going concern.
  • The Irish prime minister, Brian Cowen, has indicated that the government will not let Irish Nationwide go under, saying that it is "not a question of bailing out institutions for their own sake" but rather "establishing financial stability so that wider credit lines are available to business".
  • Shares in Bank of Ireland closed down 9 cent at 66 cents, while AIB was down 5.4 cents at 86 cents.

Statistics:

  • €80bn-€90bn (£79bn) of troubled loans extended to builders and developers will be transferred to NAMA.
  • €7.9bn in pre-tax losses at Allied Irish Banks in 2009.
  • €5bn in pre-tax losses at Bank of Ireland in 2009.
  • €2.2bn of debt securities maturing in 2009.
  • €243m loss at Irish Nationwide in 2008.
  • €464m bad debt provision at Irish Nationwide in 2008, or 4.4% of total loans.

Sources:

  • Moody's
  • Citigroup
  • Irish Times
  • Irish Nationwide
  • Irish government
  • Brian Cowen, Irish prime minister

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