Business Irish

Tuesday 23 January 2018

Moody's hammers bank and corporate bonds

Donal O'Donovan

Donal O'Donovan

IRISH bank bonds fell sharply yesterday after Moody's revised its ratings for a raft of Irish borrowers. The ratings agency included both domestic and foreign-owned banks -- and even Bord Gais -- in the scope of the reviews.

The worst-hit instruments were AIB's subordinated bond debt, which was downgraded to Ba3 from A2. Bank of Ireland's sub debt was cut to Ba1 from A2, EBS to Ba3 from Baa2 and Irish Life & Permanent to Ba3 from Baa1.

RBS-owned Ulster Bank's sub-debt rating fell to Baa3 from A3 and KBC Bank Ireland was dropped to Ba1 from Baa3.

More junior subordinated debt of AIB and IL&P was cut to B1 from Ba3.

The bigger banks saw a rapid sell-off on the news, driving prices lower. Bank of Ireland subordinated bonds fell from 95.5pc of face value to 92pc and AIB subordinated bonds fell from 95pc to 90pc.

As recently as March, the same AIB bonds were at 122pc of face value as investors flocked to debt paying 12.5pc a year interest and benefiting from explicit government support.

Analysts said yesterday's swings were unusually large for bonds that were previously far less affected by market uncertainty than the likes of the Anglo subs.

Moody's cut the ratings for Anglo Irish sub debt to C from Caa1 and Irish Nationwide debt from Ba1 to C.

The agency said the Government's decision to tackle the Anglo Irish and Irish Nationwide subordinated bonds removed any expectation that similar debt in other banks could expect systemic support.

Moody's also placed all government-guaranteed long-term bank debt on review for possible downgrade, as well as long-term bank deposit and debt ratings for Irish-owned banks.

It said its earlier decision to place government debt on review for a downgrade meant that any debt that benefits from an expectation of government support was also under review.

Bord Gais bonds were put under review for the same reason. It is the only other state-owned issuer for which the agency publishes ratings.

Irish Independent

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