Lenihan fails to halt new credit downgrade
Hammer blow as agency cuts rating over NAMA, Anglo fears
Published 25/08/2010 | 05:00
Ireland was dealt a hammer blow last night as one of the world's largest rating agencies lowered the country's vital credit rating.
This means our borrowing costs may rise and international investors could also steer clear of the country. The impact of the decision will be watched closely on international markets this morning.
A last-ditch attempt by the Department of Finance and the National Treasury Management Agency (NTMA) to stave off the downgrade, by the influential agency Standard & Poor's (S&P), failed late last night. In a statement, the NTMA said it disagreed with the decision.
Ireland has been downgraded from AA to AA-, three notches below countries such as Britain, Germany and the US. The country is also on "negative outlook", meaning further downgrades could be on the cards.
"The negative outlook reflects our view that a further downgrade is possible if the fiscal cost of supporting the banking sector rises further,'' said the S&P note.
S&P is taking its decision because it believes the cost of the banking bailouts could reach as much as €50bn. The agency also raised concerns over the ultimate cost of Anglo Irish and NAMA.
In a statement, S&P said: "We understand that NAMA has been organised in such a way as to keep it off the Irish Government's balance sheet. We take a different approach."
It said NAMA represented a "direct obligation" to the Government. The NTMA said in a statement last night: "We believe this approach is flawed."
It added that S&P was using an "extreme estimate" of what bailing out the banks would cost. The State's investments in the banks, held by the National Pension Fund, was not being recognised either, the NTMA insisted.
Borrowing costs for Ireland have been rising sharply in recent months, with Ireland now borrowing long-term money at more than 5.3pc. The latest downgrade could make this situation worse.
The position of Anglo is also making many people in the markets jittery. The bill for this bank could be as high as €24bn, Central Bank Governor Patrick Honohan admitted recently.
S&P is expected to release the latest downgrade result this morning and the company would not comment last night ahead of that.
Fine Gael finance spokesman Michael Noonan said he believed the downgrade was caused by "the uncertainty surrounding the cost of Anglo Irish Bank". He said it was time for Mr Lenihan to let the public know the full cost of the banking bailout and explain why spending all this money on Anglo was better than an orderly wind down.
"We must remember Mr Lenihan's original estimate for Anglo Irish was €4.5bn," he said.
The downgrade came on a day when shares in Ireland's largest company, CRH, dropped by 17pc, sending the ISEQ to a year low.