Moody's downgrades risky Anglo bonds to junk status
MOODY'S has downgraded a class of Anglo Irish Bank's riskier bonds to 'junk status' in the belief it will be forced to absorb some of the group's losses under a massive restructuring being assessed by Brussels.
The cut affects Anglo's so-called 'dated subordinated debt', which was covered by the original government guarantee scheme that runs out at the end of September.
The European Commission is expected to return a verdict on Anglo's restructuring plan by the end of June. It is centred around splitting the nationalised lender into an internal 'good bank' and 'bad bank', after the National Asset Management Agency (NAMA) takes over about €33bn of its property loans.
The aim is to minimise the cost to taxpayers as the majority of the business -- dumped in the 'bad bank' -- is wound down over the course of 10 years or so.
Moody's said: "The likelihood of the (entire) bank being wound-up over the short- or even medium-term timeframe is extremely low. This is because of the potential impact that this would have on the Irish sovereign and the rest of the domestic banking system."
It said that any sale of Anglo assets would lead to "severe consequences for NAMA, the key element in the Irish Government's support package to the banking sector". Still, the ratings agency said that the complexities of a 'good bank/bad bank' split carry "considerable risks and uncertainties".
Anglo's new management and auditors are preparing to account for most of the bank's €10bn to €11.5bn writedowns as it reports figures within the next three weeks.
However, sources also said that the bank was taking a "thorough and realistic bottom-up" view of its €40bn non-NAMA loan book, suggesting this would also be hit by a multi-billion-euro charge for the 15 months to the end of December.
Investors in AIB and Bank of Ireland are more concerned about how Anglo's non-NAMA portfolio is bearing up. All three will be left with a large amount of property loans that fall below NAMA's €5m cut-off point.