Debt across the Irish banking system has been reduced to 'junk' bond status after Moody's reacted to recent comments about senior bondholders from the Government and opposition parties.
As first reported in the Irish Independent, the agency said the Government's "very supportive policy'' may soon be replaced by a more aggressive approach from a new government.
As a result, the agency downgraded unguaranteed senior debt across the six banks to sub-investment or 'junk' bond status. The deposit ratings of the six banks have been placed under review for downgrade also.
"The action follows recent government statements that call into question the Government's willingness to provide additional support to the banks,'' said a note from Moody's yesterday.
Bank of Ireland fell to Ba1 from Baa2, while AIB went from Ba2 to Baa3. The most savage downgrade was for Anglo Irish and Irish Nationwide, with debt at both banks slipping to Caa1, which means there is a significant risk to investors getting their money back.
Moody's said the "systemic support assumptions'' for the Irish banks were no longer tenable, even with IMF support and NAMA's backing.
"This support policy has been brought into question over the past days, in statements from both the leading opposition party and the incumbent Finance Minister.''
While some of the comments reflected election "debate'', Moody's said there was still an "underlying threat'' to certain classes of bondholders.