Moody’s Downgrades Unguaranteed Irish Bank Debt Post author By Karl Whelan Post date February 11, 2011 Another day, another downgrade. However, the language in this one is particularly interesting. Categories In Banking Crisis Tags senior bank bonds 27 Comments on Moody’s Downgrades Unguaranteed Irish Bank Debt ← The Economic Adjustment Programme for Ireland → A Flexible EFSF 27 replies on “Moody’s Downgrades Unguaranteed Irish Bank Debt” I think Moody’s is right. We have effectively reneged on the IMF/EU agreement today with Labour/FG responding to Minister Lenihan’s invitation yesterday to write to him if they supported bank recapitalisations before the GE. Labour is reported to have said in response that it would not put any more money into AIB/BoI/EBS without a renegotiation and FG is reported to want to wait until the PCAR/PLAR is complete end-March before it decides what it will do. And Minister Lenihan says he will not recapitalise without a mandate. So doesn’t that place the IMF/EU bailout agreement in jeopardy and if it is in jeopardy, isn’t the only other real option default? http://www.irishtimes.com/newspaper/finance/2011/0211/1224289522207.html “Meanwhile, the senior unsecured and bank deposit ratings of KBC Bank Ireland have been downgraded to Baa3/P-3 from Baa2/P-2, with a negative outlook.” 😕 I note that S&P downgraded KBC and Ulster Bank earlier this month: http://imarketnews.com/?q=node/25906 Is there a risk that foreign banks operating here will fail to receive continuing support from their parents? Armageddon if so. Endgame??? “And Minister Lenihan says he will not recapitalise without a mandate.” Never stopped him before……. It is very likely the new FG gov was expected o have this recap already done – and intended the pre-election rhetoric about renegotiating to be accommodated by a meaningless form of words after a meeting with EZ “partners” about looking at the rates or terms of the bail-out as part of the March discussions. Cat meet Pigeons. It is politically very astute of FF because either FG and Lab continue with the Varadkar chant of “not a penny more until the deal is renegotiated” to play to the narrative that its all about the banks and the good citizens of Ireland are blameless – or look like they are full of sh!t wrt a real ultimatum to Europe, which of course they are. Is the bond market going to see through the politics, or are FG going to be forced to be explicitly two-faced, and start dispatching secret messengers via the investment banks even before officially in charge of the DoF? The downgrade comes as no surprise. Ireland is bankrupt, banks and state. There’s a terrible inertia among people about this basic fact; but people, agencies, and analysts do finally seem to be catching on, albeit at a tectonically slow rate. Realisation is building up like tension at a faultline, and when the critical point is reached the body politic of Ireland will snap as suddenly and thunderous as any earthquake. The Irish default will be declared, implemented, and agreed upon in one day; by everyone, unilaterally, and completely out of the blue. The sooner this comes the better. The longer we wait to default, the far more destructive the inevitable quake will become. @ ObsessiveMathsFreak I think the default/restructuring/bondholder burning will be similar to the housing crash. Beforehand people are saying, ah sure its all grand. After the event everyone will be saying, sure anyone could have seen it coming. I suppose its herd instinct. And after the event people will be saying why didn’t we do it at the time NAMA was set up, instead of wasting billions. Lenihan is making it up as he goes along. If he doesn’t have a mandate for the recap, no one does. The Dail is dissolved. The election hasn’t been held yet. The Constitution says he’s the Minister. There’s no provision in the Constitution for decisions to be made by exchange of letters between caretaker ministers and other parties. I think the deferment is looking a too clever by half stroke that has activated unintended consequences. What we don’t know is, yet again, the true views of Washington and Brussels on what is going on. Maybe since the government has no mandate — as the Minister says — they could just tell us directly? @Rory O’Farrell. And have we wasted billions! Gurdgiev on the VB show put the State cost bank bail-out figure at over €100 billion to date. That would have kept the country running for five years even with the massive deficit it is running. But the good news is that the ministers and mandarins that destroyed the country got their pay-offs and their pensions. They were not dispassionate disinterested observers in the decisions they made. Can I ask a question…who on this forum actually deposits/saves any money in Irish banks? should i move it?? @Seamus For what its worth I now keep my deposits in the Post Office – but it is a fools game as the state is now the banks and the banks are now the state -anyway it was probably always thus. The state is simply too corrupt to trust in a environment where they cannot create more credit. This favours decisions made in the interests of the powerful without the cloak of enough for everybody. In many ways the crisis is exactly what this country needs. It has at least opened the true chain of command for everybody who is curious in such matters. The truth hurts but can also be cathartic. Also I noticed a comment I made in criticism of lenihan has been wiped – the man has cancer , but in a poltical sense he is not a man , he is a holder of a important office. The personalisation of poltical figures since the “Tony” years across the Irish sea has been especially disturbing – this phenomena somewhat divorces the man from his office and has real and damaging effects on the poltical jungle. @ PH a quick cold turkey detox, at an ECB/IMF sponsored clinic…. Maybe we can make a few bucks from the rehab story. Oprah, vanity fair, tv programme like Kerry Katona!!! @ Seamus I have no savings to keep anywhere, but I do have a 2008 mortgage… where can I put that… @Seamus Some in a non-Irish bank operating in the country. Hence the alarm that foreign bank deposit ratings are being downgraded. Thinking about it, I presume that part of it is that there is no money for the deposit insurance scheme should it be required. Good think Mr. White didn’t count it in his bank-related liabilities of the state… @hoganmahew S&P ‘In our opinion, both the ability and willingness of the Irish government to provide extraordinary support to the four rated domestically owned Irish banks has weakened and we observe that these banks remain highly reliant on central bank funding sources and have been unable to source term funding, even when government-guaranteed, for some months. * We are therefore lowering the ratings on Allied Irish Banks PLC (AIB), Anglo Irish Bank Corp. Ltd (Anglo), Bank of Ireland (BOI), and Irish Life & Permanent PLC (IL&P). * The ratings on the four domestically owned banks remain on CreditWatch with negative implications, indicating potential further rating actions in the event that we lower the sovereign ratings further. This also reflects our view that the potential extraordinary support that we factor into the counterparty credit ratings may diminish further. ‘ That was over a week ago and still they fail to take the initiative. Maybe Brian has just saved us 10 billion after all ! @TOD Gold, silver, diamonds and cocoa bean – we are all going to need a ‘Mars a day’ after this ! Want some advice on banks? http://ftalphaville.ft.com/blog/2011/02/11/485311/worlds-best-bank-2006-vintage/?updatedcontent=1 Jonathan Swift’s suggestion the last time this happened: The Swearer’s Bank. Worth a shot? http://books.google.ie/books?id=NeIFAAAAQAAJ&pg=PA37&lpg=PA37&dq=Swearer's+Bank+Swift&source=bl&ots=FdUTW8X7rQ&sig=fVt7UtETPrXwUZ_1Mh5WCSFSlkU&hl=en&ei=DU1VTbXMC8GphAeWnKiwDA&sa=X&oi=book_result&ct=result&resnum=3&ved=0CCUQ6AEwAg#v=onepage&q&f=false He moved on to A Modest Proposal when thinsg got worse. @ Grumpy Bernie Maddoff wouldn’t have chanced puinting those figures ! (: My favourite from Anglo (Managing for growth in a complex environment’): Still nobody seems to be going to the core of the financial crisis – the monopoly postion of commercial banks to produce virtually all credit. Thats some power. Imagine a absurd world where the money supply or economic growth is tied to loans – unbelivable but true. Until we attack this problem the next generation will be tackling the same problems over and over again. Unless the corruption becomes so endemic that our children may have more pressing problems – such as how to cook a rat and yet make it a acceptable meal ! @ Gavin Kostik (: Whatever solution is eventually applied to the banks’ senior bonds regarding repurchase or default, it is most important in the interim that the bond holders feel fear. The greater that fear, the bigger the negotiated discount and the better the final deal will be for the Irish taxpayer. In that context, any politician who manages to trigger a ratings downgrade has done an admirable patriotic deed. So the silent run will continue. Money from ECB passes through the Irish Banks on to Savers / Depositors who then redeposit it back into a EURO bank. Funny… or should I say Unfunny, how it works. @ Seamus I’m with Waterford Credit Union. I trust a blaa backed guarantee over anything Lenny has to offer 🙂 At ROF Good call (: @Grumpy re It is politically very astute of FF because either FG and Lab continue with the Varadkar chant of “not a penny more until the deal is renegotiated” to play to the narrative that its all about the banks and the good citizens of Ireland are blameless – or look like they are full of sh!t wrt a real ultimatum to Europe, which of course they are. I cannot agree with your assessment. I think Dukes’ comment about another €15billion has everybody in the country saying-enough is enough. Not a cent more to any bank. If the ECB don’t like it, tough. I don’t think it is a rhetoric this time. At least I hope its not. As for FF being politically astute, it is a comment worthy of being engraved on Ireland’s tombstone. I get the impression from some of your commenrs that you do not expect depositors to be protected. The repercussions of the Gov’t not protecting the depositors would be broad and deep. Loss of trust in Irish banks and its Gov’t could lead to outraged members of the public chasing down bankers and politicians in the street. Defaulting on loans and bonds has to be done in accordance with the norms established over the last century and that is Gov’t backstops 33% of face value. Residual value is determined while the banks are in receivership and if there is any it is deducted from the 33%. If I bore ill will toward FG I would look forward to them winning an outright majority. If I was in favour of Labour I would encourage FG to form a coalition with the Independents. We are headed for political turmoil as a best case scenario. The worst case scenario I am reluctnat to think about Comments are closed.